Courts Take Action on Bankruptcy Preparers
A recent editorial by the Milwaukee-Wisconsin Journal Sentinel focused on how too many bankruptcy petition preparers are going well beyond what is allowed under the law and hurting poor petitioners in the process.
Urban areas have no shortage of people who prey on the poor. Fliers posted at corner gas stations or hand-painted signs that sprout like weeds across the central city promise relief from financial problems if the poor will only just pick up the phone and call.
Now, the courts are cracking down on a particularly insidious breed: bankruptcy petition preparers.
These non-lawyers help people file for bankruptcy for a fee - and often do a lot more than they are supposed to do, often to the detriment of their clients.
The ranks of the bankruptcy preparers in Milwaukee includes people who have criminal records, people who have been bankrupt themselves - even a disbarred lawyer who has a felony theft conviction, the Journal Sentinel's Cary Spivak explained in a Watchdog Report on Wednesday.
It has become a chronic problem in Milwaukee: Only five of the 94 federal court districts had a higher rate of people filing bankruptcy petitions without a lawyer than the Milwaukee district. Many of those going it alone are using bankruptcy preparers, people who follow the courts say.
Bankruptcy judges say they regularly see petitions coming to them chock-full of errors - sometimes missing entire pages of information.
The preparers often promise their customers that they can prevent utility disconnections or wage garnishments or stop incessant calls from bill collectors. The fact is, they can't. And if they make a mistake, the poor can see their petitions thrown out of court. As Spivak reported, one preparer forgot to file something as basic as a certificate indicating the petitioner had completed credit counseling, a requirement for filing.
Wisely, judges have begun to take action. Several preparers have been fined recently and a handful held in contempt of court. One of them, Gaynor Morrison, was cited separately for contempt on consecutive days in November by Bankruptcy Judges Margaret Dee McGarity and Pamela Pepper. Both discovered that petitions prepared by Morrison listed a false Social Security number as his own. The judges referred the cases for possible criminal charges.
Milwaukee County District Attorney John Chisholm is looking into the problem as well. He told Spivak: "You're just always worried about the quick-hit artists who are going to try to do things under the color of law. If people are in desperate straits, they may try to go with the quick fix."
The federal court is instituting another important change Jan. 1, as Pepper notes below: Fees by preparers will be limited to $75, which should be more than enough for simply typing up the bankruptcy petition - all that a preparer is allowed to do under the law. Fees for bankruptcy preparation often run much higher.
In one case documented by Spivak, Gerald Pieschel, a Sheboygan truck driver who filed bankruptcy in October 2009, hired a preparer because he couldn't afford a lawyer.
Pieschel paid preparer Jennifer Valente Abbott $550. He says she never told him she was a disbarred lawyer and a felon. Abbott was sentenced in 2006 to three years' probation for felony theft after taking more than $10,000 from a client. She was cited with contempt in September after a judge found she violated a 2010 order permanently banning her from doing preparation work in the region.
Pieschel says an error in her filing made it appear he was trying to hide a travel trailer from his creditors. In April 2010, Abbott was ordered to pay Pieschel and his wife $325 because of the errors she made on their filings and because of "three omissions that concealed the identity of the bankruptcy petition preparer, which could not all have been inadvertent."
The actions by the prosecutors and judges are appropriate and should help to rein in the worst actors in bankruptcy preparation.
Read the full coverage and related stories in the Milwaukee-Wisconsin Journal Sentinel here.
