File bankruptcy without a qualified bankruptcy attorney-

or don’t disclose everything to your attorney-

and your friends and loved ones could be in for a big surprise, not just yourself.

I Cannot Afford An Attorney So I Will Just File Bankruptcy Myself

Today’s true story is brought to you by Sarah (not her real name), a mother of two.

Sarah had lots of credit card and other debts.

She also owned a 1/3 interest in the house she lived in.  Her two children were the other two people on title (and they are the ones who contacted me, quite upset).

The house wasn’t particularly valuable, but there was nothing owed against it.

So Sarah decides she’s going to file Chapter 7 bankruptcy.

By herself.

Without an attorney.

And without telling anyone, including her children–the co-owners of her home.

Sarah figured bankruptcy is just the simple filing of forms, and she didn’t want to pay an attorney.

She also assumed that the house couldn’t be taken in the Chapter 7 case.


After filing her case, the bankruptcy trustee–doing his job–has put the property up for sale.

Yes, the entire property.

In Chapter 7, the Trustee can sell property owned by multiple parties–without their consent–if the debtor filing bankruptcy owns an interest.

It seems that Sarah failed to exempt her interest in the property.  (To be fair, under the applicable state law in her case, there may not have been sufficient exemptions available to protect the property anyway, but had that been known, other steps could have been taken to protect the property).

The Trustee is going to sell the property, pay the co-owners their share, pay Sarah her homestead exemption (assuming she properly files it) and disburse the rest to Sarah’s creditors.

You Cannot Just “Withdraw” A Chapter 7 Case

Sarah also thought she could just back out of her case and stop the Trustee from selling the property.

Uh, no.  It doesn’t work like that.

My article on dismissing chapter 7 cases explains why this is often not a solution.

You can seek dismissal of a Chapter 7 case, but the criteria for dismissal is what is in the best interests of the creditors, NOT the debtor who filed the case.

And it gets significantly more difficult to dismiss when the Trustee is selling assets for the benefit of creditors.

You Cannot Transfer Property During a Bankruptcy Case

I’ve written before about the risks of transferring property prior to filing a bankruptcy case.  Selling or giving away property prior to filing bankruptcy without receiving “reasonably equivalent” value can be ruled a fraudulent transfer and can be recovered by a Trustee.

Once you file a Chapter 7 bankruptcy case, everything you own becomes the property of the bankruptcy trustee until the Trustee decides to either sell those items, or abandon them (give them back).   In 99% of cases properly filed, the Trustee never does anything with assets because they are either exempted, or of inconsequential value.

Our friend Sarah, however, decided that the best way to save her house now was to transfer her interest in the property to her two children.

I think that’s “strike three” for Sarah.

Not only did she violate federal law by doing this, but the transfer itself is void, and now anything she tries to do to negotiate with the Trustee or try with the court is going to be looked upon through the filter of her violating the law and her duties as a debtor in a bankruptcy case.

Hire An Attorney–If Not For Yourself, Then For Those You Care About

This is a typical case of what would otherwise be a very simple bankruptcy filing gone horribly awry because the debtor did not think an attorney was necessary or worthwhile.

There are many other ways relatives and friends can be affected by someone else’s bankruptcy filing, but most of these can be dealt with prior to filing by an experienced bankruptcy attorney.


Image Courtesy of Neil Milne