People who file bankruptcy on their own may be likelier to make errors in filing, misunderstand what to expect and choose the wrong chapter to file under.
Each year, hundreds of adults in Washington, D.C., seek to reduce or eliminate debt by filing bankruptcy. A significant proportion of these people choose to handle the process on their own, according to data from the U.S. Bankruptcy Court for the District of Columbia. In 147 of the 502 cases filed between January 1 and September 30, 2016, petitioners represented themselves. Unfortunately, in many cases people who choose this route may face several unnecessary setbacks and complications.
1. Unsuitable chapter
The chapter of the U.S. Bankruptcy Code that a person files under can have huge impacts on the person's future finances and obligations, which makes choosing the optimal chapter essential. As an example, two of the most widely used options, Chapter 7 and Chapter 13 bankruptcy, vary in the following ways:
- Chapter 7 bankruptcy allows a person to repay debt by liquidating property, while Chapter 13 bankruptcy requires a person to enter into a debt repayment plan that may last three to five years.
- During Chapter 13 bankruptcy, a person can keep all of her or his personal property, provided that she or he keeps current on debt repayment. In Chapter 7 bankruptcy, non-exempt property must be liquidated.
- Chapter 7 bankruptcy is available to people with qualifying low income levels, whereas Chapter 13 bankruptcy is only an option for people with adequate income to complete a repayment plan.
Many people may be eligible to file under either chapter. However, people who are not familiar with the U.S. Bankruptcy Code may overlook certain benefits or drawbacks of each one and choose a disadvantageous chapter as a result.
2. False expectations
People who file bankruptcy independently may also have misunderstandings about what they should expect during and after filing. For example, they may not correctly understand the exemptions available during bankruptcy, the liabilities that are eligible for discharge or the tax implications of discharging debt through bankruptcy. These misconceptions may put a person at risk for inadvisable decisions or future financial setbacks.
3. Technical errors
Filing bankruptcy is a highly technical process. Legally, bankruptcy judges and bankruptcy court employees are prohibited from giving advice to petitioners who represent themselves. Furthermore, these petitioners are expected to comply with all local and federal rules and procedures. Without legal assistance, people who file on their own may be more likely to make mistakes with documentation or deadlines. These errors may delay a person's case or even lead to its dismissal.
Given the risks of filing bankruptcy independently, most people who are considering this option for debt relief may benefit from reviewing their situation with a lawyer. An attorney may be able to advise a person on the suitability of each legal option and provide any needed assistance during the bankruptcy filing process.