Low-cost attorney bankruptcy scams are notorious for taking advantage of low-income and minority people. So, save yourself some money. First, read our manual to gain the knowledge that you need to know how to file properly and what kind of attorney to hire. Interestingly, several studies show that being knowledgeable is far more effective in saving money on attorney fees than hiring an inexpensive attorney. So, you must understand how bankruptcy works to file bankruptcy inexpensively, effectively, and successfully.
Unfortunately, hiring a Chapter 7 bankruptcy attorney with poor experience often leads to debtor fraud through no fault of the debtor. Just like there are foreclosure rescue scams there are low-cost attorney bankruptcy scams.
However, low-income people who shop for low-cost attorneys get taken advantage of over and over. The local court requires debtors to pay attorneys in advance of filing in a Chapter 7 case. Making payments on Chapter 7 actually makes the attorney become a creditor. If you want to know how the courts handle this, listen to this audio of Judge Lloyd sanctioning a younger Louisville attorney and his clients for an hour for billing and collecting from clients after a case was filed.
Low-cost Bankruptcy Attorney Scams Take Advantage of the Low-Income and Minorities
This article derives information from an interesting article from Cathy Moran’s website Bankruptcy Mastery in California. It also takes information from a ProPublica study of the high costs of bankruptcy for the poor and minorities along with the high failure rates.
Interestingly, The Atlantic outlines these reports and shows how attorneys who advertise low-cost cases discriminate against low-income and minority people. In fact, they operate a lot like “Buy Here Pay Here” car lots. Unfortunately, these low-cost bankruptcy attorney scams target low-income and minority consumers by advertising inexpensive fees. What they are really doing is scamming their clients so they can do repeat filings at the expense of debtors and creditors.
⎆ Minorities Often End Up Paying Far More Because of a Low-Cost Attorney Bankruptcy Scam
Minorities often pay far more for bankruptcy because they look for inexpensive bankruptcy attorneys. The problem is, minority bankruptcy cases fail 50% more than wealthier debtors. Therefore, minorities and low-income people get far less out of filing bankruptcy.
For instance, they might not get the liens on their homes stripped. They also often fail to complete their bankruptcy cases and fail to get confirmation. So overall, minorities tend to fail because they don’t understand how bankruptcy works so they go for the least expensive option. However, what they don’t realize is that it ends up costing them much more in the long run.
⎆ Low-Cost Attorney Bankruptcy Scam Often Steer Clients into Chapter 13 Instead of Chapter 7
The low-cost attorney bankruptcy scam often involves steering unsuspecting clients into Chapter 13 when the case should be Chapter 7. They do this because they are assured payment from the bankruptcy funds. In Chapter 7, the client must pay upfront. So, it’s easy to convince low-income people to file Chapter 13 when it’s financially optimal for them to file Chapter 7. This, of course, costs them dearly in the long run.
This may be the fault of the system. But, it’s more often the fault of attorneys who bring in the unsuspecting low-income clients by advertising their low rates. In fact, their marketing is by design meant to target minority and low-income people. In fact, you can compare them to the “Buy Here Pay Here” car lots!
However, when you force low-income people into Chapter 13 and they can’t afford the payments, the bankruptcy fails them completely. It’s what keeps the failure rate of Chapter 13 bankruptcies skyrocketing.
Attorneys who file Chapter 7 skeleton petitions and petitions that pay filing fees in installments also have these higher rates of failure. Again, these low-cost filings target minorities and the poor with services that cost them thousands more in the long run. However, Chapter 7 cases in our office complete the process over 99% of the time!
At some point, the debtor may no longer need a Chapter 13 and needs a Chapter 7 instead. But, what Chapter a debtor files should be based on what the debtor needs—not on how inexpensively they can start a case.
⎆ What to Look for in a Top-Performing Louisville, Kentucky Bankruptcy Attorney
• Chapter 13
The court pays all attorneys the same amount so no one ever saves money shopping for a low-cost attorney for Chapter 13. What often happens is the minority and low-income people go looking for no money down filing when there is no money down for Chapter 13.
Reasons for filing Chapter 13 bankruptcy include trying to save a home that is in foreclosure or finding yourself unemployed. Additionally, you might go through a divorce. But, for whatever reason, conditions change over time. So, it’s highly important to find a good attorney with the right experience for your case for a successful bankruptcy.
So, please don’t look for the least expensive attorney regardless of the fact that you might be a low-income person. Instead, look for an attorney that will help you learn the right way to file bankruptcy. Looking for the least expensive way to file instead of the right way to file will end up costing you thousands in the long run.
The first step for any debtor facing bankruptcy is to educate themselves as much as possible about bankruptcy. You can begin by reading our Bankruptcy Manual. Debtors that do their research are far more likely to complete their cases and get the results they want.
It’s a lot like buying a car from a “Buy Here Pay Here” lot. Likewise, the low-cost attorney bankruptcy scams sell what really is a $1,200 dollar auto for $3,750 to the low-income client who can least afford it. Of course, the auto fails within four months and the debtor has to buy a second car when he should have bought a more reliable car in the first place.
• Chapter 7
Studies show there is no excess money for poor families to repay Chapter 13 cases. So, unfortunately, low-cost attorneys purposefully structure fees and the case so a petition is likely to be dismissed. This ensures that there has to be a second filing that pays the attorney a second Chapter 13 fee. It’s not too hard to figure out that the attorney is working a scam.
In fact, in one 2016 case, a Kentucky Judge lectured an attorney in court for an hour about how his cases went through refiling over and over. He was filing skeleton petitions and paid filing fees in installments to file the cases inexpensively. Then, consistently, when the cases failed, he received multiple payments. His explanation was that it is the fault of the debtor for not paying the filing fee. What was happening is the filing fees were paid after he was paid and then, the case was dismissed for not paying the filing fee.
Often the poor have no money to pay a proper attorney. In fact, the law actually requires money to be paid upfront to file Chapter 7. The simple truth is, bankruptcy attorneys can’t do a quality bankruptcy for free. Unfortunately, the system tends to shut the door to the bankruptcy court for the poor. Additionally, the doors to the bankruptcy courthouse have been closed since 2005.
⎆ What About the History of Discrimination Since 2005?
Since 2005 bankruptcy “reform” has pushed families into Chapter 13 cases and has caused high upfront costs for Chapter 7 cases. Bankruptcy petitions are now 60–80 pages long with detailed mathematical formulas. Over 90% of persons who attempt to file Chapter 13 have their cases dismissed in California within the first couple of months and never even make it to confirm.
Minorities are steered into Chapter 13 when it has little or no benefit for them. Sure it’s initially low-cost and it’s often marketed to them as the right thing to do. Additionally, Chapter 13 is often sold as Chapter 7 not being available to them although 97% of people qualify for Chapter 7.
But, when Chapter 13 has benefits to the client, it should be used. But often the “low-cost” attorney is using skeletal petitions, no money down bankruptcy, and advertising. All of this ends up costing the customer more—not less.
Resources for Bankruptcy
Louisville Kentucky Bankruptcy Forms
File Bankruptcy on Income Taxes
Debt Settlement and Debt Relief Attorney
Chapter 7 Attorney Fees in Louisville Kentucky
How to Avoid Louisville Foreclosure Scams
If you are facing bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office right away to start the conversation. Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905.
