A $500 bankruptcy usually means a petition preparer typing your answers into forms, or a volume firm that files first and asks questions never. The mistakes are predictable: the wrong exemption system, an undisclosed asset, a reaffirmation nobody needed, a Chapter 13 plan that can't confirm. Fixing them costs more than the fee that was saved, and some can't be fixed.
What a petition preparer is allowed to do
Section 110 of the Bankruptcy Code defines a bankruptcy petition preparer as anyone who isn't a lawyer and prepares a bankruptcy document for a fee. The statute then lists what they can't do, and the list is most of the job. They can't tell you which chapter to file. Which exemptions to claim, whether to reaffirm a car loan, whether a transfer to your brother last spring is a problem, whether to file now or after your tax refund comes in: none of that either. And they can't use the word "legal" in their advertising. In the Central District, their fee is capped by court rule at a modest figure.
So what you're buying from a preparer is typing. The legal decisions, which are the whole case, are left to you. You make them without knowing they're being made.
The wrong exemption system
California makes every filer choose between two sets of exemptions, System 1 and System 2, and you can't mix them. System 1 protects a lot of home equity and almost nothing in cash. System 2 has a wildcard of roughly $35,000 for most renters and a much smaller homestead. Pick System 1 as a renter with $9,000 in checking and a $4,000 tax refund pending, and the trustee takes the refund and most of the checking account. Pick System 2 as a homeowner with $300,000 of equity and the trustee sells the house.
A preparer isn't allowed to advise on this, so the form gets filled in with whichever system the last customer used. We see the results when the trustee's demand letter arrives and the client calls us to ask what happened.
Undisclosed assets and the questions nobody asked
The schedules are signed under penalty of perjury. A cheap filing tends to leave things off, not because the client is hiding them but because nobody asked the right question. The $3,000 in a PayPal balance. A personal injury claim from the rear-end collision in March. Twenty-five percent of a cousin's taco truck. That paid-off motorcycle in the garage, and the life insurance policy with cash value.
At the 341 meeting the trustee asks anyway. Now the debtor is on Zoom, under oath, explaining an omission in a sworn document. Sometimes the answer is an amendment and a lost asset. Sometimes it's a denied discharge, which means the debts survive and the filing stays on the credit report for ten years anyway. Occasionally it's a referral to the U.S. Trustee's office. The preparer is not on the call.
Reaffirmation agreements signed by reflex
The car lender sends a reaffirmation agreement to every Chapter 7 debtor with a loan. It arrives looking official and slightly threatening. A person without a lawyer signs it, because they want to keep the car and the form says that's how. What they've done is put a $22,000 debt on a $14,000 car back on their own shoulders after the discharge, with no way out if the transmission goes in year two.
Most of our clients keep their cars without signing anything. They stay current, the lender keeps taking payments, and the discharge protects them from the balance if things go wrong later. A judge here will often refuse to approve a reaffirmation that leaves the budget negative, but only if someone shows up to the hearing and explains the budget.
Chapter 13 plans that never confirm
A Chapter 13 is not a form. It's a three-to-five-year payment plan that has to pass three tests, survive the trustee's objections, treat every secured creditor correctly, and fit inside your actual budget. Volume shops file 13s to stop a foreclosure sale and then let the case die, because the plan was never going to confirm and nobody planned to do the work. The debtor gets a few months of delay, a dismissal, a filing on their credit, and a foreclosure that resumes exactly where it stopped. If they file again within a year, the automatic stay lasts only 30 days unless a motion is brought to extend it.
The Central District's no-look fee for a Chapter 13 is $7,000 for a reason. A firm quoting $2,500 for a 13 is telling you how much of the plan they intend to see through.
What it costs to fix
Here's what a repair typically involves when someone comes to us after a cheap filing has gone wrong:
- Amending the schedules and exemption claims (a court fee plus attorney time)
- Negotiating with the trustee over an asset that should have been exempt
- Rescinding a reaffirmation within the 60-day window, if it's still open
- Defending a motion to dismiss or, in a bad case, an objection to discharge
- Converting a doomed Chapter 13 to Chapter 7, if the means test allows it
Any one of those costs more than the difference between $500 and $1,850. Two of them can't be done at all once the deadline passes. Our flat fee is published on what bankruptcy costs in Los Angeles, and the question of which chapter fits is the first one a preparer can't answer for you. It's free to ask us.
the call usually starts with "I already filed and something's wrong." Half the time the something is a trustee letter demanding a tax refund the person didn't know was an asset. The other half it's a reaffirmation they signed at the dealership's suggestion. I take those cases when I can, and I charge for the repair, and the client ends up paying more in total than if they'd called first. I'm not writing this to scold anyone. Money was tight; that's why they were filing. But the cheap filing was the expensive one.
Questions people ask about this
Can a bankruptcy petition preparer give legal advice?
No. Section 110 of the Bankruptcy Code bars them from advising on which chapter to file, which exemptions to claim, whether to reaffirm, or anything else that requires legal judgment. They type; the decisions are yours.
What's the most common mistake in a do-it-yourself bankruptcy?
Choosing the wrong California exemption system. It's a single checkbox that decides whether a tax refund, a bank balance, or home equity survives, and it can't be undone after the trustee has claimed the asset.
Can I fix a bankruptcy after it's filed?
Some things, yes: schedules can be amended, an exemption claim can be changed, a reaffirmation can be rescinded within 60 days. A denied discharge or a dismissed Chapter 13 with a foreclosure resuming behind it is much harder.
Why is a $2,500 Chapter 13 a warning sign?
The court's no-look fee for a Chapter 13 in the Central District is $7,000 because the case runs three to five years and needs ongoing work. A fee that low usually means the firm expects the case to be dismissed early.
Is a cheap bankruptcy ever fine?
For a very simple case with no assets, low income, no house, no car loan and no transfers, a careful person can sometimes get through it. The problem is that you don't know your case is simple until someone who knows the law has looked at it.
Talk it through with the attorney
If you've already filed and something has gone sideways, call (310) 555-0184 and tell Naomi what the trustee is asking for. If you haven't filed yet, a free consultation is cheaper than a repair.