Although filers can save
big money by going solo,
court officials caution that
they can make lots of mistakes

By Peter Wagner
Star-Bulletin

IT'S a sign of the times. Bankruptcies are skyrocketing and so are the pro se filings -- the do-it-yourself cases that cut hundreds of dollars in legal fees. Nearly one in seven of the 5,000 bankruptcies expected in Hawaii this year will be hammered together in the back yard.

"There are huge masses of people in this country that can't afford a lawyer," said Robert McGowan, a retired computer expert who helps prepare simple bankruptcies at cut-rate fees. "Why dig up your garden with a steam shovel?"

More than 700 pro se cases have been filed in U.S. Bankruptcy Court in Hawaii so far this year, over twice the 343 in 1995.

Bankruptcy by chapter Chapter 7: The most common of bankruptcies in Hawaii and across the nation. Under Chapter 7 of the federal bankruptcy code, the debtor turns over all assets to a court trustee who liquidates any valuable property and divides it up among creditors. In return, the debtor is free of most debts. Chapter 13: A debtor holds onto his or her assets but continues to pay creditors under a court-approved plan. Homeowners trying to avoid foreclosure commonly opt for Chapter 13. Chapter 11: Usually a business reorganization in which debts are frozen during restructuring of a company and its debts.

The increase mirrors the state's growing bankruptcies, which doubled in the same period.

While many counsel against pro se, particularly in cases involving real estate or other valuable property, some "no asset" filers are finding success.

An Aiea mother of three last week breezed through her bankruptcy hearing alone after filing under Chapter 7 of the federal bankruptcy code with the help of a paralegal. She paid $160 to the paralegal, $175 to the court, and likely will be released of her debts in 60 days at a savings of about $300 in legal fees.

Mary Lou Woo, the court-appointed trustee who heard the petition, is sympathetic to pro se filers who can't afford an attorney.

"If you have no assets and you're a mother of four without any child support, your case is pretty straightforward," she said.

But Woo, who will see close to 1,000 Chapter 7 cases this year, said it's often a good idea to have a lawyer at your side -- particularly if your bankruptcy involves valuable property.

"In cases where a debtor has an interest in real estate or stock in a corporation or any significant assets, they need legal advice," Woo said.

She noted a recent case in which a commercial fisherman was able to keep his $300,000 boat only because his attorney steered him to an exemption.

But with legal fees sometimes above $1,000 for a Chapter 7 liquidation -- the simplest and most common of bankruptcies -- it's no wonder people are rummaging in the bargain basement.

Attorneys' fees range wildly in Honolulu, from under $300 to above $1,000 for a Chapter 7.

More complex Chapter 13 bankruptcies, which involve debt repayment plans, cost more.

Rarely attempted without a lawyer are Chapter 11 reorganizations, which usually involve the restructuring of a company. Just two pro se cases are on record in Hawaii this year.

Greg Dunn, possibly the busiest bankruptcy attorney in town, does about a fifth of the Chapter 7s filed across the state. His fees start at $515, plus the court's $175 filing fee for a total of $690. More difficult Chapter 13 cases range from $870 to $2,160, court fees included.

McGowan, who operates Network 1 Divorce & Bankruptcy Filing Services from his home, charges $175 to type up a 43-page Chapter 7 petition.

His clients file themselves and pay the court's $175 fee, for a total cost of $350.

Network 1 is among a handful of filing services around the state, some apparently operating by word of mouth.

Internet browsers can find listings for mainland services, offering to put together a petition for as low as $125.

The cheapest alternative is to buy the forms and file them yourself. Customers have been snapping them up at office supply store Fisher Hawaii, where Chapter 7 and Chapter 13 forms are priced at $6.30.

"A lot of people have been asking about them," said stock clerk Jennifer Savea.

"We haven't been able to keep enough in stock."

But federal court officials are concerned about pro ses. While many are well-done, they shake their heads over poorly fashioned or ill-advised petitions that cost more than they save.

"We recommend people consult an attorney," said U.S. Trustee Curtis Ching. "They're the only ones authorized to give advice about bankruptcy laws."

Mistakes include forgetting to list a creditor, overlooking exemptions, or omitting key documents. The botched paperwork can add up in court fees: $20 to insert a new document; $15 to convert a bankruptcy to Chapter 7; $75 to close a case; and $130 to reopen.

Part of the problem is a federal law forbidding nonlawyers from giving legal advice.

That limits petition preparers to offering background materials and letting customers make their own decisions.

McGowan said in most cases it's enough. "Chapter 7 for most who file is a very straightforward procedure," he said. "It's a matter of listing your bills."

But bankruptcy attorney Joseph Bowen said even a Chapter 7 bankruptcy can be a mine field. He notes that pro se filers sometimes get relief from creditors under Chapter 7 only to find bill collectors still banging on their door.

"The main pitfall is failing to list all your debts," said Bowen. "A lot of people don't list all their debts and a bankruptcy only discharges the debts you list on the petition."

And do-it-yourselfers, desperate to stop the bill collectors, don't fully realize that a Chapter 7 means losing all your valuable property.

"They don't realize their whole estate is put into the hands of a trustee," said bankruptcy attorney Edmund Lee. "That includes their car, their bank account -- everything."

Attorney Barbara Lee Melvin blames commercial preparers for misinforming clients or not taking advantage of exemptions.

"There are a lot of people going bankrupt without an attorney and most of them are doing it with preparers," she said.

"A lot of them are misinforming. Some are also charging high prices -- higher than you can get an attorney for."

Yet some attorneys see nothing wrong with an uncomplicated pro se.

"Sometimes a case is so simple we recommend that people just buy a book at the bookstore," said attorney Dawn Smith, another busy local bankruptcy lawyer. "If they have a complicated case we say 'You're silly not to use us.' But for the the most part, there are a lot of pro se and they seem to be doing OK."

Smith is one of several Honolulu attorneys who offer discount rates for "no asset" Chapter 7 cases that don't require a lawyer in court.

The service is similar to a petition preparer but Smith has the benefit of steering her pro se clients in the right direction without running against the law.

Meanwhile, fraud is a growing concern. While widespread abuse among petition preparers on the mainland hasn't yet hit Hawaii, bankruptcy officials are on the alert. The abuses, ranging from overcharging to forgery, led to changes in the bankruptcy code that require preparers to identify themselves and their fees on petitions.

"It's beginning to become a problem here too," said U.S. Trustee Ching.

"We're going to have perhaps 5,000 filings this year and hundreds will be done by people without an attorney or with the help of bankruptcy petition preparers."

Ching recently won a restraining order against a Manoa man operating as Aloha Legal Assistants for alleged fraud, including forgery and theft of court filing fees. It was the first case of its kind in Hawaii.

One victim, a 37-year-old Aiea woman, was at a bankruptcy hearing last week. Now relying on an attorney provided by the nonprofit Hawaii Lawyers Care to untangle her botched Chapter 7, she reflected on how she'd do it next time.

"I'd do it myself," she said. "I'd fill out the forms and take it down there."

Tracking the numbers

Some 4,723 bankruptcies were filed this year in Hawaii as of mid-October -- 3,553 of them under Chapter 7 of the federal bankruptcy code. While most came with the help of a lawyer, hundreds did it themselves or with the help of a friend or paralegal.

Court records show show 617 Chapter 7, 111 Chapter 13, and two Chapter 11 pro se filings through mid-October.

---

By Craig Kojima, Star-Bulletin
Greg Dunn and his wife Sam were so busy that they
managed just three days off last year.

---

Bankruptcies
a bonanza for
isle attorneys

By Peter Wagner
Star-Bulletin

Business has been hand-over-fist at Dunn & Dunn, a two-person law firm where a fifth of Hawaii's burgeoning bankruptcies will be cranked out this year.

So busy are attorney Greg Dunn and his wife Sam that the couple managed just three days off last year -- Thanksgiving, Christmas and New Year's Day.

"I have people waiting to see me all the time," said Dunn. "We work seven days a week, 12 to 14 hours a day."

Filing nearly 20 petitions a week in U.S. Bankruptcy Court, Dunn's high-volume business is expected to gross more than $1 million this year, double his revenues in 1996.

If bankruptcy is a bust, it's also a bonanza for attorneys across the state. While low on a per capita basis compared with other states, Hawaii's bankruptcies are climbing at the fastest rate in country.

The surge began in 1991 with 1,085 bankruptcies, nearly doubled 2,022 in 1995 and doubled again last year with 4,454. Through mid-October this year, 4,723 personal and business bankruptcies were filed, easily on track to set a record above 5,000 this year.

The growing market has attracted dozens of attorneys, advertising in newspapers, telephone books, television and the internet.

"If we only had two or three bankruptcy filings a day like ten years ago, you wouldn't see anybody advertising," said Honolulu attorney Edmund Lee. "I'll continue to advertise as long as there's a demand."

Lee said the advertising, which began in earnest about a year ago, is fueling the soaring bankruptcies.

"I don't think people were aware of bankruptcies before we had all the ads," he said, noting many are finding a way out of debt by filing under Chapter 7 of the federal bankruptcy code.

Barbara Lee Melvin, an attorney who also does divorces, started advertising bankruptcy services in the yellow pages this year. Business has been good enough to double her staff, expand her office and upgrade equipment.

Simple bankruptcies -- less "attorney-intensive" than divorce -- keep her practice afloat, she said. Melvin's fees, which start at $395 for a "no asset" Chapter 7, reflect the price competition that is driving rates down in Honolulu.

The undercutting goes below $300: Lee is advertising a rock-bottom rate of $275; and attorney Joseph Bowen is offering Chapter 7 services for $269.

"People are definitely shopping around for the best price," said Bowen, who began running newspaper ads about a year ago.

Dawn Smith, among the first bankruptcy attorneys to take on small cases in Honolulu, offers a "do-it-yourself" service at about half her $500 fee to put together a simple petition with minimal legal advice. The cut-rate service, tailored to those who can't afford an attorney, is similar to what is offered by nonattorney petition preparers.

But Smith, who files 10 to 20 bankruptcies a week with the help of five paralegals, said things are getting out of hand. "It's a nightmare and I'm tired of it," she said.

Meanwhile, increased advertising driven by the new competition is taking a big bite out of Smith's revenues. She said half of her bankruptcy cases go toward her advertising costs.

"It started out real heavy about a year ago," she said. "We were all doing perfectly fine with our little phone book ads but now I'm making less than I was before."