Complaints rise over bankruptcy petition writers

By: Jack Zemlicka, [email protected]//November 21, 2011//

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Pro se bankruptcy filings are on the rise in eastern Wisconsin, prompting complaints that petition writers are stepping in where only attorneys are allowed to tread.

The federal bankruptcy code lets petition writers, who are not attorneys, operate within a confined legal realm in which they only can take dictation from people filing for bankruptcy and fill in the blanks on bankruptcy forms, said bankruptcy Judge Margaret McGarity, of the U.S. District Court for the Eastern District of Wisconsin.

Petition writers, according to the bankruptcy code, are not allowed to offer legal advice, advise clients on which type of consumer bankruptcy to file for — Chapter 7 or Chapter 13 — or discuss assets the debtor can protect.

“These people,” McGarity said, “are supposed to be a typing service.”

But judges and attorneys working in the Eastern District say petition writers are going beyond what the code allows by offering legal advice and positioning themselves as cheap competition to bankruptcy attorneys.

For instance, Pam Pepper, an Eastern District bankruptcy judge, banned Dawn Gomez Bess, a Milwaukee petition writer, in October 2010 for repeated violations of the bankruptcy code, including failure to file required documents and failure to sign submitted documents. Pepper had warned Bess in October 2009 for engaging in unauthorized practice of law.

But in July 2011, McGarity found Bess in civil contempt, assessed $9,000 in fines and ordered her to refund payments of $100 and $125 each to two people who hired Bess.

It was the second time in 2011 and fourth since October 2009 that Bess had been disciplined by the court for running afoul of the federal bankruptcy code as it relates to bankruptcy petition writers.

A working number for Bess could not be found and the U.S. Bankruptcy Court for the Eastern District of Wisconsin did not have a contact number on file.

It wasn’t the only time Pepper and McGarity have sanctioned petition writers.

Pepper attributed it to the number of pro se Chapter 7 bankruptcy filings in the Eastern District. The number of filings went from 1,011 in 2009 to 1,531 in 2010 to 1,851 so far this year.

“The rise in pro se filings,” Pepper said, “means more people hiring petition preparers.”

But that’s not a bad option for people facing bankruptcy, said Donald Harris, director of the Ohio-based National Association of Bankruptcy Petition Preparers. He acknowledged there are petition writers who don’t follow the bankruptcy code but said even those who do have to walk a fine line to stay within such narrow parameters.

When petition writers are sanctioned for discussing, for example, which assets to protect when filling out a bankruptcy form, Harris said, “I think those charges are kind of spurious.”

It’s a case of trustees, who tend to be local bankruptcy attorneys, nitpicking violations because petition writers are the competition.

“Doing bankruptcy is not rocket science,” Harris said, “but when a consumer is faced with that possibility of bankruptcy, he or she really wants somebody to hold their hand.”

Bankruptcy preparers generally charge between $150 and $400, he said.

“How enticing is that for consumers who call five lawyers who each want $1,500?” Harris said.

But people get what they pay for, said Benjamin Payne, a Milwaukee bankruptcy lawyer with Hanson & Payne LLC.

While the relative affordability of hiring petition writers is tempting, he said, it often leads to filing cases prematurely and causing unnecessary bottlenecks in bankruptcy courts.

Payne said he charges around $1,000 to prepare and file bankruptcy cases.

“The really painful thing about the problems that arise with bankruptcy cases that aren’t done properly is that you can’t un-file one,” he said. “That makes the preparation of the case that much more important.”

People can file for bankruptcy to avoid paying debts or to protect certain assets.

But McGarity said there are cases involving petition writers in which a person files for bankruptcy when they have no assets to protect and then, six months later, tries to file again when they have assets.

But those people can’t file again because there is an eight-year statute of limitations for filing Chapter 7.

“People find out about these petition preparers through word of mouth and think, ‘The impression I got is that this will be the end of my problems,’” McGarity said. “And, of course, it isn’t.”

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