Requirements for Bankruptcy Petition Preparers
The Bankruptcy code, amended by The Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005, places extensive requirements on
bankruptcy petition preparers and subjects those who do not comply with
substantial penalties.
Who is a Bankruptcy Petition Preparer?
A "bankruptcy petition preparer" is a person who, for
compensation, prepares any document for filing by a debtor in
connection with a case in the bankruptcy or district court. The
attorney for the debtor and the employees of the attorney under his or her
supervision are not bankruptcy petition preparers. [11
USC § 110(a)]
More than you wanted to know: Section 110 is an example
of how words in the bankruptcy code may not mean what they appear to
mean. A bankruptcy petition preparer is a person that
prepares not just the petition, but any document which is used in the
bankruptcy case, whether the person prepared the petition or not.
Notice before preparing documents or accepting fees.
Before preparing any document for filing or accepting any fees from a
debtor, a preparer must notify the debtor that:
Preparers are not attorneys and cannot give legal advice.
The preparer must provide a written notice on an official form in
simple language that:
- The bankruptcy petition preparer is not an attorney;
- The bankruptcy petition preparer may not practice law;
- The bankruptcy preparer cannot give legal advice. The notice
may contain examples of legal advice that a preparer is not
authorized to give.
The document shall be signed by the debtor and, under penalty of
perjury, by the preparer. It will be filed with the court with any
document for filing. [11
USC § 110(b)(2)]
Maximum fees. If maximum allowable fees have been set by
the U.S. Supreme Court in its rules, or by the U.S. Judicial Conference
in its guidelines, the preparer must notify the debtor of the maximum
allowable fees. [11
USC § 110(h)(1)]
What Bankruptcy Petition Preparers cannot do. The
code gives a number of specific prohibitions for preparers:
Use of "legal" in ads. A preparer cannot
use the word "legal" or any similar term in any
advertisements. A preparer cannot advertise under any category
that includes the word "legal" or any similar term. [11
USC § 110(f)]
Legal advice. A preparer is prohibited from giving any
legal advice. The advice that a preparer cannot give includes:
- Whether--
- to file a petition under the Bankruptcy code; or
- commencing a case under chapter
7, 11,
12,
or 13
is appropriate;
- Whether the debtor's debts will be discharged in a case under this
title;
- Whether the debtor will be able to retain the debtor's home, car,
or other property after commencing a case under this title;
- Concerning--
- The tax consequences of a case brought under this title; or
- The dischargeability of tax claims;
- Whether the debtor may or should promise to repay debts to a
creditor or enter into a reaffirmation agreement with a creditor to
reaffirm a debt;
- Concerning how to characterize the nature of the debtor's
interests in property or the debtor's debts; or
- Concerning bankruptcy procedures and rights.
The list is not exhaustive. Preparers cannot give any other legal
advice. [11
USC § 110(e)(2)]
Court fees. A bankruptcy petition preparer cannot
collect the court fees from or on behalf of the debtor. [11
USC § 110(g)]
Executing documents. A preparer is prohibited from
executing any document on behalf of a debtor. [11
USC § 110(e)(1)]
Maximum fees. A preparer is prohibited from charging
more than the maximum allowable fee chargeable by a bankruptcy petition
preparer as set by the U.S. Supreme Court in its rules, or by the U.S.
Judicial Conference in its guidelines.
Documents filed with the court. The code makes specific
requirements concerning documents filed with the court.
Identification requirements for Bankruptcy Petition Preparers.
The code requires bankruptcy document preparers to provide the
following identifying information on documents filed with the court:
Sign the documents. The preparer must sign the
documents prepared for filing. [11
USC § 110(b)(1)]
Identifying number. The preparer must place his or her
Social Security account number on the documents after the
signature. [11
USC § 110(c)]
Preparer's name and address. The preparer must print
his or her name and address on the document. [11
USC § 110(b)(1)]
If the preparer is not a individual, officer, principal,
responsible person, or partner of the bankruptcy petition preparer must
sign, provide his or her Social Security account number, and print his
or her name and address on the document.
Copies of documents. A bankruptcy petition preparer
shall furnish the debtor a copy of the document no later than when it is
presented for the debtor's signature. [11
USC § 110(d)]
Fee declaration. The petition preparer must file a
declaration under penalty of perjury with the petition. That
declaration must include:
- Disclosure of fees received from or on behalf of the debtor within
the 12 months before the filing of the case.
- Disclosure of any unpaid fee charged to the debtor.
- If the rules or guidelines have set a maximum fee for services, a
declaration that the bankruptcy petition preparer gave notice to the
debtor of the maximum fees before preparing any document for filing
or accepting any fees from the debtor. [11
USC § 110(h)(1)]
Additional requirements as a "Debt Relief
Agency"
A bankruptcy petition preparer is also specifically defined as a
"debt relief agency." For more information, see Debt
Relief Agency - Requirements and Sanctions. [11
USC §§ 101(12A), 526,
527,
528]
Sanctions
The Bankruptcy code provides a number of sanctions for any bankruptcy
petition preparer that fails to comply with above code requirements.
Turnover of fees. The code requires that the court order
the turnover of any fees in two situations:
Fees in excess of value of services or maximum fees. The
court must order the turnover of fees charged by the preparer during the
12 months prior to the filing of the petition which are either:
- in excess of the value of services, or
- in violation of the court rules or guidelines setting maximum
fees.
The less than clear language of Section 110(h)(3) appears to require
that the court review charges that the preparer has made for all
services, including non-bankruptcy services, within the 12 months before
filing. The court must then order the turnover of those
fees. If the fees charged for the bankruptcy services exceeds the
court set maximum fees, it appears that the entire fee would be ordered
to be turned over. [11
USC § 110(h)(3)]
Violation of bankruptcy petition preparer requirements.
The preparer's fees are forfeited if the preparer has not met the
requirements described in the "Requirements for Bankruptcy Petition
Preparers" section above. [11
USC § 110(h)(3)]
Fines.
$500 fine. A bankruptcy petition provider may be fined
up to $500 for each violation of the requirements described in the
"Requirements for Bankruptcy Petition Preparers" section
above, or for failure to turnover fees within 30 days of a court order
to turnover fees. [11
USC §§ 110(h)(5), 110(l)(1)]
Triple fines. The court is to triple the fines if a
bankruptcy petition preparer has:
- advised the debtor to exclude assets or income that should have
been included on applicable schedules;
- advised the debtor to use a false Social Security account number;
- failed to inform the debtor that the debtor was filing for
bankruptcy relief; or
- prepared a document for filing in a manner that failed to disclose
the identity of the bankruptcy petition preparer.
[11
USC § 110(l)]
Damages and attorney's fees. If a bankruptcy petition
preparer violates Section 110 or commits any act that the court finds to
be fraudulent, unfair, or deceptive, the court is required to order the
preparer to pay the debtor:
- the debtor's actual damages,
- the greater of $2,000 or twice the amount paid for services, and
- reasonable attorney's fees
If the motion is brought by the by the trustee or creditor, the
preparer shall be ordered to pay an additional $1,000 plus attorney's fees
and costs. [11
USC § 110(i)]
Injunction. The court may enjoin a bankruptcy petition
preparer from engaging in prohibited conduct if the preparer has:
- engaged in conduct in violation Section 110 or of any provision of
the Bankruptcy code;
- misrepresented the preparer’s experience or education as a
bankruptcy petition preparer; or
- engaged in any other fraudulent, unfair, or deceptive conduct.
[11
USC § 110(j)]
An example. Let us assume that a bankruptcy
petition preparer is using a document preparation program that generates
the documents to file bankruptcy. Let us further assume that the
program has a glitch that causes one petition in one case to be printed
and filed without giving the preparer's Social Security account number--a
violation of 11
USC § 110(b)(1).
Leaving aside the strange disparity in the code's treatment of Social
Security account numbers--the debtor's Social Security account number is
concealed from those accessing court records, but anyone can view the
number of the preparer--what might this inadvertent act cost the
bankruptcy petition preparer?
$500 fine. 11
USC § 110(l)(1) states that the preparer "may be fined not
more than $500" for each infraction. The word
"may" is a discretionary term allowing the court impose a
fine, but not requiring it to do so. A judge sympathetic to the
vagaries of computer programming might decide not to impose any
fine.
Turnover of fees. 11
USC § 110(h)(3)(B) provides that the fees charged by the preparer
"may be forfeited" for the infraction. Again, the court
has discretion to impose the penalty--or not.
Debtor's actual damages and the greater of $2,000 or twice
the amount paid to the preparer. 11
USC § 110(i)(1) also specifies penalties for a preparer who
"violates this section". Omitting the preparer's Social
Security account number is a violation of section 110, so subsection
110(i)(1) would apply. Subsection 110(i)(1) provides that
"the court shall order" its penalties. "Shall"
is not discretionary language. Even a sympathetic judge
would presumably be required to impose the penalties. The
penalties:
- The debtor's actual damages. (It is hard to believe that a
debtor would suffer any actual damages from the omission of the
preparer's Social Security account number.)
- The greater of $2,000, or twice the amount paid to the preparer.
- If the action is brought by the trustee or a creditor, an
additional $1,000, plus attorney's fees and costs.
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