Posted by Kevin on September 20, 2018 under Bankruptcy Blog | 
Over the years, I have received numerous phone calls from people who have tried to file a bankruptcy by themselves (known as “pro se” debtors) and have gotten into trouble. I also see first hand what happens when people file without an attorney when I attend “meetings of creditors”, also known as 341a meetings. A 341a meeting is the usually straightforward, usually short meeting with the bankruptcy trustee that everyone filing bankruptcy must attend. Unfortunately, with many pro se debtors, the 341a meeting is not always straightforward or short.
But I wondered whether anybody has actually investigated this question. In searching the internet, I came across a book published a few years ago titled Broke: How Debt Bankrupts the Middle Class. This book is a series of articles about current issues in bankruptcy. One such article is titled “The Do-It-Yourself Mirage: Complexity in the Bankruptcy System” by Professor Angela K. Littwin of the University of Texas School of Law. Professor Littwin analyzed data from the Consumer Bankruptcy Project, “the leading [ongoing] national study of consumer bankruptcy for nearly 30 years.” Her finding: “pro se filers were significantly more likely to have their cases dismissed than their represented counterparts.”
Very interestingly, she also learned from the data that
consumers with more education were significantly more likely than others to try filing for bankruptcy on their own, but that their education didn’t appear to help them navigate the process. Pro se debtors with college degrees fared no better than those who had never set foot inside a college classroom.
She concluded that after bankruptcy law was significantly amended back in 2005 in an effort to discourage as many people from filing, “bankruptcy has become so complex that even the most potentially sophisticated consumers are unable to file correctly.”
Almost 10 Times More Likely to Get a Discharge of Your Debts
In another study, Prof. Littwin stated that “17.6 percent of unrepresented [Chapter 7 “straight bankruptcy”] debtors had their cases dismissed or converted” into 3-to-5-year Chapter 13 “adjustment of debts” cases. “In contrast, only 1.9 percent of debtors with lawyers met this fate.” Even after controlling for other factors such as “education, race and ethnicity, income, age, home ownership, prior bankruptcy, whether the debtor had any non-minimal unencumbered assets at the time of the filing,” “represented debtors were almost ten times more likely to receive a discharge than their pro se counterparts.”
The bottomline is that you are better off going to an experienced bankruptcy attorney.
Posted by Kevin on September 7, 2018 under Bankruptcy Blog |
A creditor can challenge the discharge of its debt in bankruptcy.
Why Creditor Challenges Are More Common in Closed-Business Bankruptcies
For the following reasons, creditors tend to object more to the discharge of their debts in bankruptcy cases that are filed after the debtor has operated and closed a business:
- The amount of debt owed in business bankruptcies tends to be larger than in a consumer case, making objection more tempting to the creditor.
- In the business context some debtor-creditor relationships can be very personal. Consider debts between former business-partners who are blaming each other for the failure of the business, or between a business owner and the business’ primary investor who believes the owner drove the business into the ground, or between the contract buyer of a business and its seller in which the buyer feels that the seller misrepresented the profitability of the business. In these situations the aggrieved creditor is more personally motivated to fight the discharge of its debt.
- The owners of businesses in trouble find themselves desperate to keep their businesses afloat. So they may make questionable decisions which then expose them to objections to discharge.
- In the kinds of close creditor-debtor relationships mentioned above, the creditor often has hints about the business owner’s questionable behavior, and so is more likely to believe it has the legally necessary grounds to object.
But Objections to Discharge Are Still Not Very Common
When former business owners hear that any creditor can raise objections to the discharge of its debt, they figure an objection would very likely be raised in their case. But in reality these objections occur much less frequently than might be expected, for the following reasons:
- The legal grounds under which challenges to discharge must be raised are quite narrow. To be successful a creditor has to prove that the debtor engaged in rather egregious behavior, such as fraud in incurring the debt, embezzlement, larceny, fraud as a fiduciary, or intentional and malicious injury to property. These are not easy to prove.
- In his or her bankruptcy case the debtor files, under oath, papers containing quite extensive information about his or her finances. The debtor is also subject to questioning by the creditors about that information and about anything else relevant to the discharge of his or her debts. If the information on the sworn documents or gleaned from any questioning reveals that the debtor truly has no assets worth pursuing, a rational creditor will often decide not to throw “good money after bad” by raising an objection.
Conclusion
In a closed-business bankruptcy case there are these two opposing tendencies. Challenges to discharge are more likely, especially by certain kinds of closely related creditors. But these challenges are still relatively rare because of the narrow legal grounds for them and the financial practicalities involved. A good bankruptcy attorney will advise you about this, will prepare your bankruptcy paperwork to discourage such challenges, and will help derail any such challenges if any are raised.
