Why you should stay out of the bankruptcy bargain bin

As bankruptcy filings have been on the rise, it seems like the legal market has been flooding with new bankruptcy practitioners. And with the intense competition, we're seeing what looks like a price war, which is generally great for the consumer. But as we're seeing prices cut drastically, we also suspect providers are cutting corners on quality. That's why it might not be a good idea to go bargain hunting when there are serious issues at stake.

  • "Limited scope representation" and petition preparers. You'll find these services scattered across Craigslist--they advertise bankruptcy for $300-$600 and offer significantly less service than a specialist attorney would. But it's not like you can just check some boxes in a bankruptcy case and head off to have tea with the trustee. Don't believe it when someone says bankruptcy is simple--your bankruptcy may be simple, but you won't know that until you discuss your situation with an experienced practitioner.

  • Pre-bankruptcy planning issues. There are several things that can possibly derail an entire Chapter 7 case. For example, cash advances on a credit card made in the month before filing may be nondischargeable. Or if the client has sold property to a family member at a discount price before filing, the trustee might argue fraud. An experienced attorney can help you avoid these pitfalls.

  • The means test is tricky. Pop quiz, petition preparer. On the means test, do you count expenses on a six-months-in-the-past basis or do you deduct expenses ongoing? How do you treat the $600/month the client is sending home to Africa? Can you count the car ownership deduction if the client owns the car outright? If someone gives you a quick answer to any of these questions, be cautious.

  • 341 meetings can be scary. Getting grilled by the trustee at the meeting of the creditors is no fun. We prepare our clients by letting them know what kinds of questions the trustee will ask--and we know it's different from one trustee to the other. If practitioners are not accompanying clients to the 341 meeting on a routine basis, they don't know what sorts of issues trustees have been digging at. For example, I heard one trustee recently ask whether the filer had any credit card points that could be cashed in (because if the filer didn't exempt those, the trustee could seize them as part of the bankruptcy estate.) Nobody would know to look out for that issue unless they'd been there hearing the trustee ask about it. You need an attorney who knows all the potential traps.

These issues only scratch the surface of the legal analysis an experienced bankruptcy attorney will undertake when they represent you. If you're skipping this level of detail in your case, you may be leaving yourself vulnerable to having your case dismissed or your property seized.