When it comes to filing for bankruptcy, Marylanders are more likely to be do-it-yourselfers than debtors in other states.
Maryland ranked ninth in the country a year ago in the number of bankruptcy cases in which the debtor wasn't represented by a lawyer, according to the administrative office for the U.S. Courts.
Even some of these go-it-alone filers aren't completely without assistance, though. Many hire a bankruptcy petition preparer to fill out court documents. Preparers, who charge a fee, can't give legal advice, such as whether the debtor is better off filing for bankruptcy under Chapter 13 instead of Chapter 7.
But there's increasing concern nationwide that petition preparers may be overstepping their bounds by giving legal advice — and not very good advice at that. This can lead to debtors' unnecessarily forfeiting assets or even having their cases dismissed, legal experts say.
A federal courts newsletter reported last week that growing problems with bankruptcy petition preparers — BPPs — seem to be tied to the foreclosure rescue and loan modification services that have popped up in recent years.
"The homeowners are desperate and take advice from the most questionable sources," said California Bankruptcy Judge Maureen Tighe in the newsletter. "There is a wide range of BPPs, from those who are well-meaning but still are giving legal advice, to out-and-out fraud perpetrators — and the down-and-out consumer debtor doesn't know the difference most of the time."
It's understandable that cash-strapped consumers might want to save money by using a preparer who charges much less than a lawyer.
But bankruptcy — especially Chapter 13, in which the consumer agrees to a repayment plan — can be tricky, and the advice of a good attorney is invaluable. Do-it-yourselfers who can't afford a lawyer should explore programs that offer free legal advice or representation.
Maryland has a variety of such programs, including one in the Bankruptcy Court that provides a free half-hour consultation with a lawyer.
Bankruptcy petition preparers have been around for decades, but their numbers have grown since the 2005 overhaul of the nation's bankruptcy law, attorneys say. The tougher law required more work and documentation from lawyers, who in turn raised their fees. Preparers stepped up to assist debtors who couldn't afford a lawyer.
Bankruptcy petitioners don't have to be certified or trained. They are just supposed to type the debtor's information on bankruptcy forms.
Some courts limit preparer fees to $150 to $250. But there's no cap in Maryland, and fees can range from $100 to $700 for a few hours' work. In comparison, a lawyer in Maryland may charge $500 to $3,000 for a simple Chapter 7 bankruptcy, says Brett Weiss, a Greenbelt lawyer.
The majority of preparers have worked in a law office or successfully handled their own bankruptcies, says Donald Harris, director of the National Association of Bankruptcy Petition Preparers in Ohio. The group trains preparers and has about 460 members nationwide.
"They discovered how easy it really is and began asking the question, 'If it's this easy to fill out the form and I have a simple bankruptcy, why is the attorney charging $2,000?'"
Harris, a bankruptcy attorney, says hiring a preparer to download bankruptcy forms and fill them out is similar to hiring H&R Block to fill out tax returns.
But lawyers say bankruptcy is not simple.
"Bankruptcy is one of the most complex areas of law, with so many different types of law folded into it," Weiss says.
Lawyers, of course, have a financial interest in having consumers hire them rather than bankruptcy preparers. But attorneys say some filers pay a preparer and end up having to hire a lawyer anyway.
"I personally have been involved in a number of cases where I have taken over a filing where a petition preparer completely screwed it up," Weiss says. "I have seen cases where people have lost their homes as a result of petition preparer errors."
Richard Chambers, deputy director of the Maryland Volunteer Lawyers Service, says he has seen a couple of debtors' cases thrown out of court after preparers incorrectly filled out forms.
"And then they have to start the process again and come to us looking for an attorney who can do it right," Chambers says.
Harris acknowledges that there are some bad preparers but says most are "trying to do it right." Some preparers even refer customers to lawyers if a case is complicated, he says.
U.S. trustees reported that 504 actions were filed against preparers across the country last year, slightly less than the year before. Trustees don't break out numbers by state, although cases have been brought against preparers in Maryland.