Are Bankruptcy Laws Too Complicated?

Understanding bankruptcy laws is very challenging. Just because you have decided to declare bankruptcy doesn't mean that you also aren't savvy, sophisticated and a quick study on new topics. A lot of very smart people either couldn't manage their finances very well, or couldn't avoid a calamity of circumstances that crumbled their family's finances. While debtors can file for bankruptcy without an attorney's help, the question is whether that is the best idea.

Since the bankruptcy laws were changed considerably in 2005, there is a significant danger that an individual with no expertise in filing bankruptcy petitions can make a critical mistake. In fact, there are a number of different reasons that it makes sense for a debtor not to file his or her own bankruptcy petition.

Bankruptcy law can be very complicated. Do you know the filing dates in your jurisdiction, not to mention the various forms that must be filled out and what information must be included in each of the different forms? Can you make the call on whether Chapter 7 or Chapter 13 is the best choice for an individual debtor? How about the different bankruptcy choices for businesses? If you chose Chapter 7, are you familiar with the ins and outs of the Means Test? This could involve a computation of income and expenses that does not rely on either current income or actual expenses.

Avoiding missteps before the filing is critical. Do you understand that any of a number of actions you take in the weeks and months preceding bankruptcy can have an enormous effect on your bankruptcy chances? Do you know that taking on additional debt within 90 days of filing for individual bankruptcy - and perhaps even 6 months or more before filing - can have a profound effect on your case? Would you know not to transfer any property or pay off any loans to relatives before resorting to bankruptcy? The bankruptcy trustee would have the power to undo such transactions and legally retrieve the money and disburse it instead equally to all of your creditors. For that matter, would you know that entering into debt with a co-debtor could potentially limit what bankruptcy chapter you choose?

Can you afford to make a mistake? In either Chapter 7 or Chapter 13 bankruptcy, the bankruptcy trustee in the case has the power to decide that you don't deserve bankruptcy at all. Or that you should not be allowed a Chapter 7 liquidation plan and must instead go with a Chapter 13 repayment plan. The trustee could look at mistakes in the lengthy and complicated bankruptcy petition and conclude they were done on purpose to conceal pertinent information. Fraud can be grounds for Chapter 7 dismissal or even the refusal to allow a debtor to file for any form of bankruptcy.

Bankruptcy laws present enough difficulties that the old adage concerning someone who goes to court without an expert rings true: A debtor who represents himself has a fool for a client. It's certainly not outside the realm of possibility that a debtor could handle the nuances and complexities of the bankruptcy filing process. The bigger question, though, is why take the chance?