Reports on the Rise of Bankruptcy Preparer Scams
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Reports on the Rise of Bankruptcy Preparer Scams

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December 22, 2011


Reports from Colorado (on and Wisconsin (in Milwaukee’s Journal-Sentinel) note that bankruptcy preparer scams have been on the rise in recent months.

The cost of such scams can be devastating for people in need of bankruptcy protection: in addition to losing the money they pay the scammers, many victims also miss bankruptcy court deadlines, lose the bankruptcy court’s protection, and may lose their homes to foreclosure or their cars to repossession.

Legally, bankruptcy preparers are permitted to type up bankruptcy petitions for clients. They are not lawyers and they are generally not licensed to provide legal advice about bankruptcy or related financial matters.

As of January 1, 2012, the federal bankruptcy court is instituting a new fee limit for bankruptcy preparation services: these professionals are not permitted to charge more than $75.

Unfortunately, too many people seeking bankruptcy protection are unaware of the role that bankruptcy preparers are permitted to play in the bankruptcy process. Missing this crucial bankruptcy info means that many bankruptcy filers choose to complete their petitions with a bankruptcy preparer rather than a licensed bankruptcy lawyer.

This choice is often a misguided one spurred by finances: because bankruptcy preparers generally charge less than lawyers, they may seem like a better bargain for those struggling financially.

But, according to sources, bankruptcy preparers often make crucial errors during the filing process. They may forget to file important documents, incorrectly document a filer’s debts and assets, and even misidentify their role in the filing process.

In one notable case, reported by the Journal-Sentinel, the court discovered that one bankruptcy preparer who was advertising her services was a disbarred bankruptcy lawyer who had been convicted of a felony.

Other cases, the paper notes, involved preparers forgetting to file the required proof of completion of the pre-bankruptcy credit counseling session. Such an oversight might cause the bankruptcy court to dismiss a filer’s bankruptcy petition, thus denying him or her valuable protections such as the automatic stay.

The bottom line, it seems, is that bankruptcy filers must make sure they have as much information as they can before paying someone to help with their case. If someone offering to prepare or complete your filing is offering a price that seems "too good to be true," it probably is.

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