The federal court itself says it is “extremely difficult” to go through a Chapter 7 case successfully without an attorney.
The Chapter 7 “straight bankruptcy” procedure DOES seem much simpler than that of a Chapter 13 “adjustment of debts.”
Most Chapter 7 cases are done within four months, while Chapter 13 cases take three to five years. Most Chapter 7 cases don’t involve a court hearing but only a “Meeting of Creditors,” whereas a Chapter 13 payment plan must be approved by a judge, usually at a court hearing, sometimes requiring than one hearing. Chapter 13 involves putting together a formal payment plan, which must follow numerous legal requirements, and which often must go through a process of negotiation with creditors and the bankruptcy trustee. There is no such “plan” in a Chapter 7 case.
So a Chapter 13 clearly seems to need an attorney. But honestly, do you really need an attorney in a Chapter 7 case?
The Court’s Opinion
Let’s start with how the website for the U.S. federal courts puts it:
While individuals can file a bankruptcy case without an attorney or “pro se,” it is extremely difficult to do it successfully.
It is very important that a bankruptcy case be filed and handled correctly. The rules are very technical, and a misstep may affect a debtor’s rights. For example, a debtor whose case is dismissed for failure to file a required document, such as a credit counseling certificate, may lose the right to file another case or lose protections in a later case, including the benefit of the automatic stay. Bankruptcy has long-term financial and legal consequences – hiring a competent attorney is strongly recommended.
Trips and Traps
Even situations that seem simple are not necessarily. There are an almost infinite number of things that can go wrong, problems that common sense and even diligent effort could easily miss.
Here are just a few examples:
- If a debt is not listed accurately in the bankruptcy schedules, or is not done so on time, you may end up owing that debt after your case is completed. Although most debts are obvious and easy to list, who should be given notice to successfully discharge a debt is often not so obvious, for example when debts are sent to multiple collection agencies, and situations involving litigation and other kinds of disputes. It’s crucial to list all potential creditors and claimants appropriately.
- A bankruptcy judge can throw out your case and/or deny your ability to discharge ANY of your debts if you do something that appears to be dishonest, such as not completing the bankruptcy documents correctly or thoroughly.
- There are many actions that you could take that seemed to make sense at the time, but could have very damaging consequences. Examples include selling or giving away possessions before filing bankruptcy, or discarding financial records. You will be asked questions under oath about such behavior. In addition, bankruptcy cases are randomly audited for their accuracy, truthfulness, and completeness.
- Be aware that bankruptcy fraud is a crime, for which people are regularly prosecuted.
- If you file bankruptcy without an attorney you are still required to follow the many different sets of laws and procedural rules that apply to the federal bankruptcy courts. These include the United States Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, the local rules of the court in which the case is filed, plus the applicable state and federal statutes, as well as the applicable state and federal court decisions interpreting all of these to the extent that they apply to your case. It’s virtually impossible to even know WHAT you need to know much less understand and be able to apply all the pertinent laws and rules. It takes an attorney years of experience working full-time to do so.
- Passing the “means test” can be a huge challenge. It can be incredibly complicated. If you don’t “pass,” you would likely be forced into a Chapter 13 case and into paying your creditors for three to five years.
- There are countless timing rules which can affect what debts you can discharge, whether creditors you paid earlier can be forced to surrender what you paid, whether you will pass the “means test,” what property exemptions you can use, and a bunch of other potentially important consequences. What date a Chapter 7 case is filed often involves delicate balancing of various timing-sensitive factors.
- Any creditor can object to your attempt to discharge of its debt. For obvious reasons creditors will be more likely to object when they see that you are not represented by an attorney.
- Such creditor objections to discharge involve a lawsuit filed in and litigated in the bankruptcy court. These lawsuits involve all the complicated rules of litigation, evidence, discovery and such. Although these creditor objections are usually resolved by settlement, the terms of settlement are much more likely to be fair to you if you have an attorney.
- After getting the required credit counseling from an approved provider within 180 days before filing a case, and the required debtor education after filing, you have to provide the right documentation with the court on time or else your case will be dismissed—thrown out.
Debtors without Attorneys Are Many Times More Likely to Have an Unsuccessful Case
A couple years ago Professor Angela K. Littwin of the University of Texas School of Law published a study, in which she found that “17.6 percent of unrepresented [Chapter 7 “straight bankruptcy”] debtors had their cases dismissed or converted” into 3-to-5-year Chapter 13 “adjustment of debts” cases. “In contrast, only 1.9 percent of debtors with lawyers met this fate.” Even after controlling for other factors such as “education, race and ethnicity, income, age, homeownership, prior bankruptcy, whether the debtor had any nonminimal unencumbered assets at the time of the filing,” “represented debtors were almost ten times more likely to receive a discharge than their pro se counterparts.”
Prof. Littwin concluded that “filing pro se [without an attorney] dramatically escalates the chance that a Chapter 7 bankruptcy will not provide a person with debt relief.”