In 2011, approximately 5,484 Americans filed for bankruptcy protection each day. While factors such as healthcare costs, foreclosures and job loss continue to be catalysts for bankruptcies, the majority of filings tend to be linked to consumer debt. To meet the demand of consumers seeking “do it yourself” bankruptcy alternatives, various web-based businesses and software firms have cropped up, marketing cheap and easy tools to file bankruptcy online.
Similar to do-it-yourself tax software, bankruptcy software is sold directly to the consumer and, like the former, has its share of inherent benefits and pitfalls. An obvious advantage is the degree of explanation and step-by-step guidance throughout the software, which is altogether absent from traditional court forms. Also, do-it-yourself bankruptcy software promises to save the user a great deal of time. A word on this point however: the software still has a large degree of specialization, and therefore will only be truly efficient in the hands of individuals familiar with preparing bankruptcy filings. The fee charged to file bankruptcy online or to purchase bankruptcy software runs anywhere from half the cost – to the full cost – of hiring a bankruptcy lawyer to prepare the documents on your behalf.
For all the perceived benefits of bankruptcy filing software, this alternative has definite limitations for the average consumer. The software itself is unlikely to perform an incorrect mathematical function; however, the user must understand the underlying concepts for each of these functions or user errors may result in your form being inadmissible. Initially, tax and bankruptcy software were designed not for consumer use, but intended as tools for professionals to make their own work more efficient.
Consumers with complex bankruptcy situations should retain an attorney for bankruptcy advice and to explain your rights and obligations as a debtor.
Perhaps the most important information for consumers considering do-it-yourself bankruptcy software, or planning to file bankruptcy online, is to be aware of the changes made to US bankruptcy laws in 2005 that the software cannot help the debtor fulfil.
The Bankruptcy Abuse Prevention and Consumer Protection Actof 2005 implemented a series of amendments to US bankruptcy laws that prescribe a series of criteria that petitioners must fulfil in order to declare bankrupt and ultimately be discharged from bankruptcy. The first criterion is the completion of a bankruptcy means test, an income-based test which determines whether debtors are eligible for Chapter 7 or Chapter 13 bankruptcy, and in particular determines whether the debtor has sufficient financial means to repay a portion of their debts. The bankruptcy means test was implemented in part to prevent wealthy debtors from filing for Chapter 7 Bankruptcy and is. Individuals filing for bankruptcy ought to seek the counsel of credit counsellors and bankruptcy lawyers to complete this test.
The final conditions that cannot be met using bankruptcy software are related to pre- and post- bankruptcy education. Under the new US bankruptcy laws, individuals seeking relief from creditors through bankruptcy will be required to complete a pre-bankruptcy counselling session with a qualified credit counsellor. Certificate of completion from this session must accompany bankruptcy filings. When a debtor has reached the end of their repayment plan, they must complete a post-bankruptcy debt education course before their bankruptcy filing can be discharged.
Ultimately it is the consumer’s choice how to proceed, whether filing bankruptcy with the counsel of bankruptcy lawyers or with do-it-yourself bankruptcy software and filing online. Under the new laws, debtors must consult with credit counsellors and complete debt education courses in order to successfully file for, and be discharged from, bankruptcy. When applying for relief under US bankruptcy laws, it is your responsibility to be informed of your rights and obligations as a debtor, and given the complexity of many bankruptcy cases, the bankruptcy advice and professional guidance provided by bankruptcy lawyers are worth the expense.