Below is a reprint of an article that appeared on MSN Money.
Beware cut-rate bankruptcy advice
2 types of bankruptcy mills
- High-volume practices run by attorneys, who may or may not ever meet their clients before appearing in court.
- Storefront bankruptcy-petition preparers who advertise cut-rate services, usually without a lawyer's help.
Bad advice costs the consumerCritics say the mills often give poor advice, causing their clients' cases to be dismissed, leaving them saddled with debts that could have been erased or encouraging them to file when they shouldn't.
An increasing problemThe U.S. Trustee Program, which supervises bankruptcy case administration, says bankruptcy mills are an increasing problem. The program filed 243 actions in fiscal year 2002 for attorney misconduct, up 62% from the year before. Actions against bankruptcy petition preparers rose 43%, to 1,150.
- A bankruptcy-petition preparer in Woodland Hills, Calif., advertised $99 bankruptcies, only to use high-pressure sales tactics on low-income elderly and disabled clients to boost the fee to $650.
- A bankruptcy-petition preparer in Alexandria, Va., called himself a "foreclosure specialist" and charged up to $3,500 for his services, which included trying to buy clients' homes at below-market prices and then renting the properties back to them.
- An Oklahoma City attorney repeatedly failed to show up for bankruptcy hearings, in one case forcing a disabled client to make a 280-mile journey to attend a rescheduled meeting.
- A Denver attorney in at least five cases redeemed his clients' property from foreclosure proceedings, reselling each time for profits of up to $50,000.
- In Los Angeles, the U.S. Trustee last year forced attorney Claudia Phillips to sell her practice as part of a settlement agreement after she repeatedly failed to meet with clients or represent them adequately in court. Court papers said Phillips allowed others to forge her signature and those of her clients on documents, adding that Phillips' husband, Kenneth, who was not a lawyer, actually ran the practice and offered legal advice.