Legitimizing Bankruptcy Petition Preparers: A Socio-Legal Prescription for Change

Abstract

Individuals who need to file for bankruptcy often find themselves confronted with the very real dilemma of desperately needing financial relief on the one hand and affording the high costs of accessing the bankruptcy law system on the other. The decision to resort to bankruptcy comes at a financially precarious time in most peoples’ lives and often after an exogenous life event pushes them over the financial precipice. Given that many consumer debtors come from the lower middle class and working class, many have a difficult time finding the funds to pay for the necessary access costs, most notably, attorney fees.

The direct access costs for entering the bankruptcy law system have increased dramatically since the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005, which represented a fundamental change to the philosophy of consumer bankruptcy law in this country and, more poignantly, a statute promulgated largely at the behest of powerful and wealthy financial institutions. Because of the sharp increase in counsel fees following BAPCPA, consumer debtors nationwide have turned to the services of non-lawyer “bankruptcy petition preparers” to help them file for bankruptcy relief pro se. At present, these bankruptcy petition preparers are prohibited from offering any services to debtors beyond simply acting as scribes and typing information onto the bankruptcy petition and accompanying schedules. Anything beyond such ministerial tasks has been held to be the unauthorized practice of law.

The dynamic of bankruptcy petition preparers existing as players in the consumer bankruptcy law system has been ongoing for several decades, but the issue has taken on greater significance since BAPCPA took effect. That is, a segment of the consumer debtor population can no longer afford legal representation, but still need some level of legal assistance if they intend to file bankruptcy pro se. Adopting the sociological framework of conflict theory, I interpret this present tension in the consumer bankruptcy system as one of social class conflict between the wealthy and powerful lending institutions that brought about the dynamic of higher access costs and the financially-strapped consumer debtor class, many of whom were intentionally priced out of the bankruptcy system or at least made to delay the inevitable day of filing while these corporations lined their coffers with additional interest and penalty payments.

To correct this class imbalance in the bankruptcy law system, this Article argues that bankruptcy petition preparers should be permitted to engage in what otherwise would be the unauthorized practice of law by offering legal assistance and advice to the segment of the consumer debtor population filing for Chapter 7 with no assets, namely, those debtors with generally the greatest financial need. To do so would require § 110 of the Bankruptcy Code to be amended or repealed. More importantly, to quell concerns about competence and debtor protection, I argue that bankruptcy petition preparers should be sanctioned by the United States Trustee’s Office through a program of regulation and licensing. Licensed bankruptcy petition preparers would need to meet certain educational requirements and carry malpractice insurance, or the creation of a judicial district fund to offset any negligence claims. Such a system would also serve to prevent the significant abuses of both debtors and the courts committed by some segment of the bankruptcy petition preparer population that has been reported in the bankruptcy case law for the past several decades.