The Hidden Risks of Bankruptcy Petition Preparers: Why “Cheap” Can Be Costly

When you are already struggling with debt, the cheaper price of a non-attorney “bankruptcy petition preparer” can be tempting. However, as someone who has taught and practiced bankruptcy law since 1999, I cannot stress this enough: A bankruptcy petition preparer is a typing service, not a legal advocate.

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

While bankruptcy petition preparers are authorized under Section 110 of the Bankruptcy Code to type your forms, the limitations placed on them often create more risk than reward for the debtor. Here is why hiring an experienced bankruptcy attorney is critical.

Legal Advice vs. Data Entry

The most dangerous limitation of a petition preparer is that they cannot give legal advice. By law, they cannot tell you:

• Which bankruptcy chapter, 7 or 13 you should file.
• Which exemptions will best protect your home, car, or retirement.
• Whether a specific debt is dischargeable.

In contrast, an attorney analyzes your unique situation to ensure you don’t accidentally lose assets or have your case dismissed due to a technical error. Something as simple as delaying filing because of a tax refund is considered giving legal advice, yet a bankruptcy petition preparer cannot offer that strategy to a debtor.

Accountability and Licensing

When you hire an attorney, you are hiring a professional answerable to the State Bar and the Court.

The Attorney: Most attorneys have malpractice insurance and follow strict ethical codes as required by local rules and the state bar. If they make a mistake, there is a clear path for accountability.

The Bankruptcy Petition Preparer: Often has no specialized education, no license to lose, and no requirement for insurance. If they botch your paperwork, you are often left to face the consequences alone.

A Real-World Example of a Bankruptcy Petition Preparer

I was once approached by a bankruptcy petition preparer who was seeking my representation because a Trustee had filed for sanctions against her. Out of professional curiosity, I asked what materials she had used to learn bankruptcy law to see if my textbook was used.

She told me it wasn’t, that instead, the instructor relied solely on self-created PowerPoints.

Having developed and taught bankruptcy curricula for paralegal programs, undergraduate courses, and law school, I can assure you that PowerPoints are a supplement, not a substitute for a textbook.

Bankruptcy is governed by the Code, local rules, and evolving case law. When someone relies on “bullet points” rather than a comprehensive study, mistakes are inevitable. It was no surprise to me that the Trustee was seeking sanctions, which tend to be substantial penalties.

In this case, the trustee was seeking to prevent the bankruptcy petition preparer from filing any additional petitions in that district. As a result, the petition preparer stopped accepting cases. Meanwhile, the debtor was left alone to handle these issues.

Discussions with the Bankruptcy Trustees and Judges

A bankruptcy filing involves multiple parties: the Chapter 7 or 13 Trustee, the Judge, and your creditors.

Attorneys stand between you and your creditors. They attend the 341 Meeting of Creditors with you, negotiate with the Bankruptcy Trustee regarding issues with nonexempt assets, and argue your case before the Judge.

Petition Preparers are legally barred from representing you in court or speaking on your behalf. You are effectively “Pro Se” (representing yourself), meaning you must handle the Bankruptcy Trustee’s questions and creditors’ objections entirely on your own.

If your case becomes complicated, such as a 2004 Examination is filed, or worse, an adversary proceeding, not only will the petition preparer not be able to represent you, but it’s common for a bankruptcy lawyer to not accept the case at this stage. The reason why is simple: liability.

The bankruptcy attorney did not file the initial petition, but if anything goes wrong along the way, the lawyer could be held liable. While the lawyer could take steps to mitigate the damage, such as amending the bankruptcy petition, at this point, it would cost more to amend the petition and represent you in a 2004 Examination than to simply have the lawyer represent you from the beginning, guaranteeing that the petition was filed correctly.

Flexible Payment Plans

Many people choose bankruptcy petition preparers because they believe they can’t afford an attorney. However, most bankruptcy lawyers understand your financial distress and offer flexible payment plans. In many Chapter 13 cases, a significant portion of the legal fees can even be paid through the repayment plan rather than upfront.

The Professor’s Bottom Line

Filing for bankruptcy is one of the most important financial decisions you will ever make. Don’t risk your “fresh start” by trying to save a few hundred dollars on a typing service.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link. You can also listen to my podcast on Spotify.

You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.

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Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.