Obviously, people who need to file bankruptcy do not have a lot of spare dollars and it may be tempting to visit the local office supply store and purchase a “bankruptcy kit” for $15 and file a case on your own to save the attorney’s fees. Along these same lines, you may see advertisements in Creative Loafing or other “alternative” papers by bankruptcy petition preparers offering cheap services.
There are many reasons why you should not file a bankruptcy case without the assistance of a lawyer but perhaps the most compelling reason arises from the possibility that you will not be able to dismiss your case and the trustee will appear at your door and demand that you turn over money and property.
The nation’s bankruptcy laws are designed to balance the needs of honest, hardworking people who need relief from creditors with the rights of creditors to collect debts. Bankruptcy should not be seen as a tool to buy time or to frustrate the rights of creditors by debtors who have no intention of reorganizing.
No Voluntary Dismissal of Chapter 7
Under the law, you cannot voluntarily dismiss a Chapter 7. A bankruptcy judge has to agree to any voluntary dismissal of a Chapter 7 liquidation. If you try to dismiss, it is likely that the trustee will use the power of his office to investigate your financial affairs in order to find assets. If the trustee does find assets, he will use his authority to seize those assets and sell them for the benefit of unsecured creditors.
Attorney Jonathan Ginsberg recalls a case involving a pro se debtor and the problems that arose when this individual filed a case on his own then discovered that he could not dismiss it:
A number of years ago, I got a call from a gentleman who said he needed my help in dismissing a Chapter 7 he had filed on his own. It turns out that he had been sued for about $15,000 and was facing a summary judgment motion. In order to avoid the issuance of the judgment, he went to Office Depot, purchased a Chapter 7 kit, and filed enough papers to get a case number.
He was subsequently able to settle the lawsuit and now he wanted to dismiss the Chapter 7. When he filed a voluntary dismissal paper with the Clerk of Court, the trustee filed a notice of objection and thereafter filed an extensive discovery request asking for all manner of financial records.
After he hired me I called the trustee to see what I could work out. The trustee – who was one of the more aggressive trustees in the Northern District – told me that his preliminary research revealed that the debtor had an undivided half interest in a $150,000 house.
I called my client and he explained that his elderly mother had lived in that house for 25 years and that she had recently quit claimed half interest of the property to my client as part of an estate plan.
The trustee advised me that it did not matter why the property was transferred, only that this property was an unencumbered asset of the bankruptcy estate.
Eventually we were able to settle the estate’s claim by paying the trustee $100,000, which came from a refinance of this property. Only then would the trustee withdraw his objections to dismissal.
The point of this story is that you should never file any bankruptcy, and especially a Chapter 7 without a full understanding of the consequences. This means that you should sit down with a knowledgeable attorney, complete a detailed questionnaire that sets out your assets and debts, and file only after you have a clear picture of the good and bad about filing.
Chapter 13 – Do Not Enter Into Lightly
Unlike Chapter 7, the bankruptcy law does allow a debtor to voluntarily dismiss Chapter 13, but here, too, there are exceptions.
Attorney Ginsberg describes a case dating back a few years where he filed a Chapter 13 case on behalf of a debtor and after filing the trustee filed a motion asking the judge to disallow a voluntary dismissal because of the extensive assets owned by the debtor.
Just like in Chapter 7, trustees do not want to see people filing bankruptcy cases to address an emergency or to buy time, when they have no intention of following through with their case. Chapter 13 trustees in the Atlanta area have seen it all, and they can smell bad faith.
The bottom line: never treat a bankruptcy filing like a casual move. Filing bankruptcy should be treated like the serious financial undertaking that it is.