In my October 17 blog entry I discussed how thrilled I am about the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. And recently I addressed one of the requirements of the Act: the need to obtain a “ticket” into bankruptcy, by obtaining mandatory credit counseling prior to filing and providing certification to the court.

On December 22, 2005, the Bankruptcy Court for the Western District of Texas at Austin was forced to dismiss a joint Chapter 13 case because one of the debtors had not obtained the mandatory credit counseling. The Debtors told the court that they were “working with the mortgage company to determine the exact amount that was owed but [the mortgage company] had refused to accept payment at the last moment…”. The Debtors filed their case in an effort to stave off a foreclosure of their home. While the court's hands were tied, the court was not happy about dismissing the case.

While the opinion aptly illustrates how absurd the new bankruptcy laws are by pointing out, among other things, that “to call the Act a ‘consumer protection’ Act is the grossest of misnomers,” it should not be inferred that bankruptcy relief is not available. It only emphasizes what has already been observed on this blog: the new bankruptcy laws have new requirements that must be adhered to, but bankruptcy relief itself is still available.

Rather than further summarize the case, you can read the five page decision here.

Unfortunately, there are some lessons to be learned from this case. The most important: distressed debtors, especially homeowners facing foreclosure need to speak with a bankruptcy attorney at the earliest possibility, and know that if they want to have bankruptcy as an "option", they need to plan accordingly.

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If one picks up the MBTA Red Line at Downtown Crossing, less than a block from my office, one must pay $1.25 to board. If the rider takes the T to Quincy Adams or Braintree, another $1.25 must be paid to exit the station. While it’s never happened to me personally, I can only imagine that if one does not have the $1.25 to exit, they are left to board the train again and head back into the direction they came in. Under the new bankruptcy law, debtors need a ticket to file, a topic that I discussed on December 30. There is also the new requirement to obtain a ticket out of bankruptcy: Debtor Education.

Section 727 of the Bankruptcy Code was amended to provide that a debtor cannot receive a discharge if the debtor has “failed to complete an instructional course concerning personal financial management.” Once completed, a certificate of completion is filed with the Bankruptcy Court. Thus, in addition to credit counseling, bankrupt debtors must complete a post-filing course in financial management.

I believe that by the time the bankruptcy petition is filed, the debtor has already been through the emotional hell of realizing that bankruptcy is the best option for them; attended a mandatory credit counseling session; provided their attorney with many documents and records; and completed questionnaires and responded to numerous inquiries from their attorney. All of this preceded by months, if not years, of trying to struggle with unmanageable debt and to avoid bankruptcy all together.

Then, after they file, they attend a Section 341 creditors meeting. While any good bankruptcy attorney is going to properly advise a debtor what to expect in the meeting, none of that will alleviate a typical debtor’s fear of the unknown. Bankruptcy attorneys may have many cases and attend many creditors meetings. But most bankruptcy debtors have one case, and attend one meeting and it’s not uncommon for debtors to have a restless night’s sleep the night before.

However, despite an overwhelming urge to move on, their bankruptcy filing could be an exercise in futility if the debtor education course requirement is not fulfilled.

So the bottom line is that the requirement must be fulfilled. It is an additional cost that a debtor must bear, but it is a necessary step to obtaining that bankruptcy discharge. Like the Red Line in Braintree, it’s the ticket out of bankruptcy. Except it’s not as cheap as train fare to Braintree.

Is it fair? Is it even worth it? Time will tell.

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There’s an outfit called “We The People” that touts itself as an cost effective alternative to hiring attorneys to assist consumers with that they claim is merely “document preparation.” According to a franchise website, “[f]or the last 10 years, We The People has invited entrepreneurs to reach out to their communities by offering an efficient, affordable, and convenient alternative to the high cost of attorneys’ legal services.” Unfortunately, WTP has developed quite the reputation among consumer bankruptcy attorneys for providing substandard and grossly incompetent bankruptcy services to consumers, and in some cases, engaging in the unlawful practice of law. Thus, you can imagine my shock during a recent stroll through Boston’s City Hall Plaza when I noticed that WTP has set up shop here.

Bankruptcy courts from around the country have caught onto WTP’s practices when it provides bankruptcy services to customers. However, their customers have not been so lucky.

The Cases Against 'We The People'

On December 1, 2005, the Bankruptcy Court for the Western District of Kentucky issued an injunction against WTP prohibiting it from performing any bankruptcy related services in that District, finding that “a petition preparer ‘is only authorized to type information exactly as provided by potential debtors.’” In re Argue, Chapter 7 Case no. 05-36070. WTP did a little more than that.

In a decision dated October 25, 2005, the Bankruptcy Court for the Eastern District of New York found that the WTP franchise in that district engaged in fraudulent, unfair and deceptive practices by charging fees for services not rendered, and ultimately, providing no value for the services it did render. In re Gaftick, 33 B.R. 177 (Bankr.E.D.N.Y.2005).

The day before, on October 24, 2005, the Bankruptcy Court for the Eastern District of New York issued an order based on a stipulated judgment between We The People and the US Trustee. The judgment bars WTP from, among other things, engaging in the unauthorized practice of law. Martini v. We the People Forms and Service Centers, USA, Inc. The order also requires WTP to make employees available to the US Trustee for questioning to ensure they are obeying the order.

On October 6, 2004, the Bankruptcy Court for the Middle District of Tennessee assessed more than $10,000 in sanctions against the local WTP franchise as well as WTP USA for various violations of the bankruptcy code. In re Finch, Chapter 7, Case no. 303-12952.

Most of these cases came about because the bankruptcy debtors encountered serious problems with their bankruptcy paperwork and their cases. Ultimately, these folks struggling with debt thought they could save money by bringing their bankruptcy matter to a company that has built its business reinforcing the notion that hiring competent and experienced legal counsel is not needed to get access to and relief from the bankruptcy courts.

Consumers must ask themselves this question: is it really worth saving money now, only to expend more later trying to emerge from a poorly planned and prepared bankruptcy? Or is it more cost effective to hire someone who knows the law, understands the system and can properly prepare the case and legally guide the consumer along the way? I am not sure that the answer is found by looking at dollars and cents so much, as is it is by considering dollars and sense. I am also not so sure that We The People asks those questions or is particularly interested in the answers.

As for the We The People franchise that just opened in Boston, I have yet to meet any debtors who have experienced problems with this franchise. In fairness, WTP also purportedly provides legal document preparation services in other areas of the law, and I do not know nor do I comment on their ability to properly or lawfully perform those services. But, the company that is being repeatedly hauled into bankruptcy courts for practicing law without a license, and providing substandard services to people struggling with debt has a reputation that based on these and many other court rulings, speaks for itself.

Bankruptcy debtors have enough to deal with. Their struggle with unmanageable debt touches virtually every facet of their lives. Their bankruptcy cases should not collapse, nor should they fear or suffer the loss of their home or other property simply because of an ineffectual or inept petition preparer.

Posted by Bill McLeod at 5:39 PM | Permalink | Comments (0) | TrackBacks (0)

You'll find a new indepth article on Debt Settlement in the Articles section of the site.

More and more consumers are exploring this, as well as other means to handle their debt. Like many things, "the devil is in the details."

Posted by Bill McLeod at 6:41 PM | Permalink | Comments (0) | TrackBacks (0)