Getting a fresh start in bankruptcy is usually the single most important event in any person’s financial life. Yet, despite the importance of planning and properly executing a bankruptcy, we have found that a number of people make the same mistake over and over again when preparing to file for bankruptcy. Some of the most common are as follows.
1. Hiring an Attorney Without Sufficient Bankruptcy Experience
There certainly is an over-abundance of attorneys in California. California has one of the highest ratios of attorneys to people of any place in the world! The number one mistake people make when filing for bankruptcy is choosing an attorney that does not have a substantial amount of bankruptcy experience. In truth, a good part of filing for bankruptcy is, simply, filling in forms. However, there are usually several issues in each case, which require a good deal of careful handling which experience can prevent problems from arising. If a problem arises, someone could have their bankruptcy thrown out, have certain debts declared non-dischargeable and can even lose assets, sometimes including their house, car, or retirement. For example, less experienced attorneys will tell clients that retirement plans or IRA accounts are absolutely protected. While this may be the general rule, it is certainly not always the case. When hiring a bankruptcy attorney, choose someone who has a substantial amount of experience and practices bankruptcy law as the largest portion of their practice.
2. Choosing a Bankruptcy “Mill”
Because bankruptcy involves a good deal of paperwork, and competition among bankruptcy attorneys is fierce, a number of law firms have set up a “mill” approach in an effort to increase their volume and reduce their fee. However, this is not the best answer, in that, it usually puts the client on the short end of the stick. That is, going through the most important event in their financial life with representation whom they cannot even get on the phone! Do not choose a bankruptcy attorney that handles too many cases.
3. Choosing a Paralegal or Legal Document Service to Assist with the Bankruptcy Filing
In California, the law changed in 2001 to provide that individuals who call themselves “paralegals” can not offer services directly to the public. If someone tells you that they are a paralegal and are not operating in conjunction with an attorney, they are not operating within the law. Immediately, run out the door! The California legislature created a group of individuals known as “document preparation services”. The law does not provide that they have any experience or any education whatsoever. Rather, the legislature envisioned that these people would essentially be typing up forms for people who would then file these forms themselves with the court. These same individuals must sign retainer agreements with their customers, which clearly state that they are not attorneys, do not have any legal education and cannot give any legal advice.
While this latest development is very helpful for individuals who need assistance with filling out their paperwork, it also may create a tremendous disparity between what people are thinking that they are getting and the actual service which they are receiving. If a problem arises, the person filing the bankruptcy has absolutely no liability for all of the paperwork they created. If there are mistakes, which cost an individual to have to give up assets or they bankruptcy denied, the preparation service has no liability for those mistakes because they did not render any legal advice whatsoever.
4. Having Assets and Choosing to File Bankruptcy Themselves
Individuals who do not have any assets may want to try and do the bankruptcy paperwork and try and get through the bankruptcy filing themselves. This is not always a bad idea but does contain a number of risks. These individuals will need to take all the calls from creditors and all of the inquiries regarding reaffirmation of debt, etc. Further, they will need to appear at their hearing by themselves and handle any questions asked by creditors at the hearing. Many people still want to have the buffer of a lawyer between them and creditors even if they do not have any assets. For those individuals who do have assets, such as, a house, car without payments, retirement accounts, bank accounts, etc., filing for bankruptcy without the effective counsel of an attorney, is almost never a good idea.
5. Hiring an Attorney That Does Not Initially Advise Them to Avoid Bankruptcy Or, At the Very Least, Does Not Provide Them with Alternatives to Bankruptcy
Bankruptcy is a constitutional right. Many times, it is the most effective solution to solve a certain type of problem. However, it should never be an individual’s first choice. There are some downsides to bankruptcy, which each every person who files bankruptcy should know and understand clearly. If you have an attorney who does not initially advise against bankruptcy, or at least give you a number of alternatives to bankruptcy, chances are you sat down with someone who is simply interested in retaining a new client. This means that they are more interested in their well being than yours. Everyone should be explained the alternatives to bankruptcy prior to the bankruptcy being filed.
6. Not Undertaking a Serious Credit Report Rehabilitation Program Immediately after the Bankruptcy Is Complete
If a filing bankruptcy is appropriate, it is only the first step in a complete financial rehabilitation. Certainly, discharging the debts and stopping calls from creditors is important. However, a serious plan needs to be undertaken to control cash flow, create a systemized plan for creating some reserves (savings) and undertaking a plan to remove any erroneous information from your credit report, as well as undertaking a systematic approach to putting new, good credit onto your credit report. A good law firm that cares about your future will show you how to do both of these items. We have found that individuals can qualify for “A-” credit as soon as two years after bankruptcy filing, but only if they undertake a serious plan to rehabilitate their credit. There are a number of places that talk about “credit repair”. Usually this involves undertaking a system that is based upon misrepresentation and can get an individual into more trouble than they are already in. Individuals need to “rehabilitate their credit” to remove any erroneous information and to put new, good credit on their credit report.
Be careful if someone tells you that they can remove items from your bankruptcy report, such as lawsuits, foreclosures and bankruptcies. Usually, they will be telling you to do something fraudulent. Once again, filing bankruptcy is probably the most important event in anyone’s financial life. It should be considered a “once in a lifetime” option. However, if this option needs to be utilized, the full benefit of the filing should be used. This includes appropriate pre-bankruptcy planning, effective use of the bankruptcy laws to discharge as much of your debt as possible and a systematic approach to rehabilitate your finances and your credit report after the bankruptcy filing.
