Critics: New Bankruptcy Paperwork Will Cause Inaccurate Filings 

The paperwork that people and businesses have used to file for bankruptcy protection since the 1980s is being replaced on Dec. 1 with forms that have clearer, easier-to-understand instructions and that’s…bad?

Bankruptcy experts who have been working to freshen up and simplify the new forms since 2008 got an earful from critics who worried that the clearer instructions–free of legalese and a confusing format–will encourage more people to file without help from a bankruptcy lawyer. That could lead people to make big mistakes and–of course–would be bad for business, critics said during the public-comment phase of the process.

“May as well hand them some dynamite,” said one commenter who predicted the forms will cause the number of people who file for bankruptcy without a lawyer—called pro se filings—to surge. “As we all know bankruptcy is not about filling in forms–it is about understanding the rules, statutes and case-law that dictate and interpret how forms are completed.”

Another commenter from Iowa said the confusion will increase “demands on the courts’ time as [judges] try to sort out the financial affairs of uninformed debtors. There are good reasons to consult an attorney when filing a federal court petition. A bankruptcy petition incorrectly or untimely filed can negatively affect a debtor’s future, rather than providing the hoped-for relief.”

The worry on behalf of people filing for bankruptcy submitting inaccurate information is legitimate, consumer advocates say. People who submit information to bankruptcy judges on the forms face criminal charges if they make an error.

“The consequences are really severe…people can lose their homes,” said John Rao of the National Consumer Law Center who helped with the forms modernization project. “It’s not my goal to make business for attorneys–I just think it’s a process that’s difficult to do without one.”

The team of judges, lawyers, courthouse officials and others who sit on the committee that handled the forms project–officially the Advisory Committee on Bankruptcy Rules–defend their decision to make the new forms reader-friendly, saying that the new documents’ “ample warnings about the significance of the forms and the possible consequences of inadequate filings should deter, not encourage, uninformed pro se filings” in a report.

“Because the debtor has to file under penalty of perjury that the information is correct, it should be asked in a way they can understand,” said S. Elizabeth Gibson, a professor at the University of North Carolina School of Law, during a recent American Bankruptcy Institute-organized online forum about the changes.

Committee members studied older filings for frequently mis- and unanswered questions. When they released drafts of the proposed new forms, they got hundreds of comments—both praise and complaints.

And lawyers being no lawyers, no observation was too small to share: several commenters protested that gray-shaded boxes on the new forms would use too much printer ink.

The new forms have won approval from the Judicial Conference of the United States, the policy-making body of the U.S. Judicial Courts.

Perhaps the biggest change with the new forms is that people and business owners will use two different sets of paperwork to file for bankruptcy. Historically, they’ve used the same three-page petition.

For business owners, the new forms ask for a few new pieces of information such as a website, whether the company collects customer details that could raise privacy concerns and, for health-care firms, how many patients are under its care.

The new forms, though, for the most part don’t ask for financial information that hasn’t been sought before.

Aside from bringing clarity, the paperwork project had another goal: making it easier for courts to collect data and track trends using the standardized selections that bankrupt people and businesses make on the forms.

Right now, judges don’t have an easy way to count, for example, the number of people who filed for Chapter 13 protection with student loan debt. After a few technological upgrades in the coming years, court administrators will be able to pull that information more easily.

The availability of that information raises a question that the committee dodged: who should get access to the data? Academics? Journalists? Private companies that profit from the services they sell to the legal community?

And if the data does become publicly available, how much would it cost?

“I wouldn’t want the Judiciary to see this as a good way to solve a budget crisis,” Mr. Rao said.

Already, bankruptcy-industry groups are raising the question. Here’s what committee officials said in a report to explain why this task was beyond their scope:

A comment submitted on behalf of the National Association of Bankruptcy Trustees expressed disappointment that it now appears that electronic data from the new forms will not be made available to users outside the judiciary. The prospect for access to this data was a selling point for the modernized forms at the outset, the comment said, and the ability to produce customized reports was explained as offsetting the necessity of dealing with longer forms. The Committee noted that this comment raised policy issues that are outside its purview and that the possibility that such data could be made available to outside users at some time in the future has not been foreclosed. The Committee concluded that the new forms provide sufficient benefits to users to outweigh the inconveniences of adapting to them, even if electronic data is not immediately made available to outside users.

Reach Katy Stech at [email protected]