When you can't afford bankruptcy

Atlanta Legal Aid represents fewer than 50 consumer-bankruptcy cases a year because of limited resources, says Steve Gottlieb, executive director. The bankruptcy cases that receive representation involve either the loss of a home or a wage garnishment.

Gottlieb says a retired bankruptcy judge provides free advice to debtors on whether their situation is appropriate for bankruptcy.

Limited-scope legal representation

Madelynn Herman, an analyst for the National Center for State Courts, suggests limited-scope legal representation. This is also known as unbundling, discrete task representation, partial representation or limited representation.

"Limited-scope legal representation allows you to go to an attorney and have the attorney represent you on part of the case," she says.

• Free service: Get help from a credit counselor

According to Herman's 2003 "Trends in State Courts" report, the service is segmented into three categories: general counseling and legal advice, limited appearances before the court, and preparation or assistance with preparing documents or pleadings.

She warns that not all states allow for this representation because of attorney rules or professional conduct standards.

Consumer bankruptcy attorney Diane Drain has started a limited-scope representation project at the U.S. Bankruptcy Court in Phoenix. The court acknowledged the appropriate use of the service and the Arizona State Bar's ethics rules permit unbundling services, says Drain.

"People were getting in such horrible situations filing on their own or with these document preparers," she says. Drain mentioned such errors as debtors failing to identify all of their assets.

The project allows clients to have an attorney assist them with filling out the bankruptcy documents, as well as drafting a Chapter 13 repayment plan. The attorneys also offer assistance on bankruptcy issues. For instance, the attorneys help when a filer agrees to pay the creditor all or a portion of a dischargeable debt, or when a lawsuit is filed during the proceeding.

Drain says she recently provided prefiling preparation and charged the client $400 for two to three hours of help.

The project does not have an income-requirement limit.

The pro se desk

Another possible route to free legal help is to find out whether the local U.S. Bankruptcy Court has a pro se desk.

This service is provided at the U.S. Bankruptcy Court in Chicago, according to Karina Ayala-Bermejo, a spokeswoman for the Chicago Bar Association.

She says debtors can come multiple times to receive assistance from an attorney, but no further help is offered once the person files. The services are available in the morning for 30-minute sessions. The lawyer present explains consumer bankruptcy procedures as well as the debtor's options. The debtor's petition is also reviewed. Debtors are required to sign up and do not have to meet a required income limit to receive help.

Other resources

Legal-document preparers are an option. However, the help of an attorney is strongly advised by bankruptcy experts due to the complexity of the law.

Jon Rao, an attorney for the National Consumer Law Center, says the services are risky and suggests considering the petition preparers only as a last resort.

"Given they cannot give legal advice, essentially they are a typing service," he says.

Lizanne Sadlier, a spokeswoman for the National Association of Legal Document Preparers, believes choosing a legal-document preparer to arrange the paperwork is a good solution for people with relatively uncomplicated bankruptcies who are not in need of legal advice.

"But it is not the best option for everyone," she says. "For those who have a complicated bankruptcy and are unsure of the legal course they need to take, they should see an attorney."

Legal document preparers charge around $199 to $399, says Sadlier. In some areas, she says, the amount is less since bankruptcy trustees can limit the fees.

Preparers can put together the necessary paperwork for the Chapter 7 liquidation and Chapter 13 repayment plan bankruptcies, provide information about the process and help ensure the accuracy of the documents, Sadlier says.

She warns that consumers must have an understanding of their needs and have chosen a course of action prior to seeing a preparer.

Some links that might help

• American Bar Association, for looking up local attorneys

• National Association of Consumer Bankruptcy Attorneys

• National Association of Legal Document Preparers

• Pro bono programs

• Unbundling rules by state

This article was reported and written by Brigitte Yuille for Bankrate.com

Published Aug. 17, 2007

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