December 29, 2011 Top Story

Pro Se Bankruptcy Filings Growing Faster than Other Debtor Relief

Two-to-one growth rate may be due to federal reforms increasing potential liability

Joseph Callanan

The increased complexity of consumer bankruptcy cases, combined with federal reforms that hold debtors’ counsel personally liable for the accuracy of their clients schedules, may be driving an increase in pro se bankruptcy filings. Lawyers’ fear of sanctions may explain, in part, the results of a recent study by the Administrative Office of the U.S. Courts of bankruptcy filings, which found the growth rate of pro se filings is double that of regular filings.

The study indicates bankruptcy debtors with legal representation increased 98 percent during the five-year period of the study. By contrast, pro se bankruptcy filings ballooned 187 percent. The study period began after the effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) and ended June 30, 2011.

The report includes objective statistics, but offered little interpretation of the possible causes for the increase in pro se filers. Section of Litigation leaders agree that federal reforms of the bankruptcy code, the state of the overall economy, and the greater prevalence and ease of access to Internet resources likely are factors contributing to the number of people filing for bankruptcy protection without a lawyer.

Greater Complexity of Consumer Bankruptcy Increases Potential for Legal Liability

Congress enacted BAPCPA in reaction to perceived abuse of the bankruptcy system. BAPCPA contains several provisions that increase the potential liability of bankruptcy attorneys. These provisions have “a strong negative impact on all lawyers who offer bankruptcy-related advice to individuals,” according to an ABA report supporting a House of Delegates resolution adopted in 2009. Enacted in October 2005, BAPCPA imposed new certification standards for debtors’ bankruptcy attorneys.

The potential liability of lawyers who represent debtors in Chapter 7 actions, which involve liquidation of consumer debts, likely contributes to a greater reluctance of counsel to take on certain cases. For example, 11 U.S.C. § 707 now contains a provision that holds debtors’ attorneys personally liable for the accuracy of their clients’ schedules and filings. Attorneys who fail to verify debtors’ information could face harsh sanctions if a client’s stated financial information proves to be inaccurate.

The ABA has opposed BAPCPA-style provisions since 2001. In addition to objecting to holding lawyers responsible for accuracy of schedules, the ABA has objected to requiring attorneys to certify the debtor’s ability to make future payments under reaffirmation agreements, and identify and advertise themselves as “debt-relief agencies” subject to a host of new intrusive regulations.

The ABA also filed an amicus brief with the U.S. Supreme Court in the case challenging certain aspects of BAPCPA’s debt-relief agency provisions. The Supreme Court subsequently issued, in March 2010, its decision in Milavetz, Gallop & Milavetz, P. A. v. United States upholding, while narrowly construing, these provisions.

BAPCPA’s provisions make bankruptcy representation unaffordable for many debtors resulting in many more pro se debtors further burdening the court system. The ABA’s Governmental Affairs Office drafted legislation to repeal these provisions.

Different Types of Consumer Bankruptcy Protection Contribute to More Pro se Debtors

Differences between Chapter 7 and Chapter 13 (debt restructuring) cases may also contribute to the increased percentage of pro se filers. “The areas of the country which seem to have the most dramatic increase in pro se filings are also some of the areas with longer and/or deeper unemployment issues,” says Deborah D. Williamson, San Antonio, cochair of the ABA Section of Litigation’s Bankruptcy and Insolvency Litigation Committee.

“There are very few Chapter 13 pro se filings,” Williamson says. She suggests the substantive and procedural differences between the chapters may be another significant cause of the accelerated increase in pro se filings in bankruptcy court. “Chapter 7s are very form-driven and not generally litigation-driven unless there is an objection” by a creditor, Williamson says. “If you can get through the forms, get through the first meeting of creditors, you could be done [with a Chapter 7] in 90 days.”

Williamson also notes that such a swift resolution is unlikely to occur in a Chapter 13. After filing a Chapter 13, a pro se must “draft a plan, negotiate with the Chapter 13 trustee, prepare a budget evidencing disposable income and get the plan approved—they [Chapter 13 filings] are just more complicated,” she says. “If you have been unemployed long enough such that the ‘means test’ is not a barrier, if you cannot exempt a homestead or have very little equity in your home to protect, then a Chapter 7 filing often makes more sense than filing a Chapter 13.” A pro se debtor is “looking at three to five years of payments to complete a plan and obtain a discharge” after filing a Chapter 13.

Impact of Recession and Federal Bankruptcy Reforms on Pro Se Filing Rates

The economic recession is an obvious additional factor in the rise in pro se filings contributing to “a lack of capacity among insolvency attorneys given the increased number of files,” says Brett Harrison, Toronto, cochair of the Section of Litigation’s Bankruptcy and Insolvency Litigation Committee. BAPCPA and the recession together, however, create additional difficulties for consumer debtors.

The increased workload of consumer insolvency lawyers “is exacerbated by the obligations on attorneys under [BAPCPA], which can discourage them from taking on certain cases,” such a Chapter 7 actions, Harrison says. Another consequence of BAPCPA is that “business bankruptcy attorneys who might have been willing to assist pro bono now find that the changes to the consumer debtor practice make such representation too complex to provide adequate representation on an infrequent basis,” Williamson adds.

Western Districts Lead the Nation in Pro Se Bankruptcy Filings

There is wide disparity in the percentage of pro se bankruptcy filings in different geographic regions. Western states have the highest percentages of pro se filers. All districts west of the Rockies have more than 8 percent of all bankruptcy proceedings filed pro se —except four: the U.S. District Courts for the Southern District of California, the District of Idaho, the Eastern District of Washington, and the District of Wyoming. The study reports that southern states, which typically have “historically high Chapter 13 filing rate, generally have a lower pro se rate than the rest of the country.” This fact supports Williamson’s observation that the different types of consumer bankruptcy protection contribute to the increased percentage of pro se.

Not surprisingly, “districts where the foreclosure crisis has been particularly acute (the U.S. District Courts for the Northern District of Georgia, the Middle District of Florida, the Southern District of Florida, the Central District of California, the Eastern District of California, the District of Arizona, and the District of Nevada) tend to have higher pro se rates than other districts,” the report concludes.

The Proliferation of Information on the Internet Makes Filing Pro Se More Common

Ease of access to Internet resources also may be contributing to an increase in pro se filers in proceedings that primarily rely upon standard forms. A simple Internet search provides “a pro se filer with much more information today than was available 10, or even five, years ago,” says John R. Burns III, Fort Wayne, IN, former cochair of the Section’s Bankruptcy and Insolvency Litigation Committee.

The Internet is, along with the weak economy, a major contributor to the dramatic rise in pro se filers. “[T]he plethora of information available online has provided individuals who would not have historically been able to act pro se with that option,” Harrison concludes. Internet resources even now include the courts’ official forms and instructions.

Joseph Callanan is a contributing editor for Litigation News.

Keywords: pro se, bankruptcy, litigation, BAPCPA, Milavetz, debt-relief agencies

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