Crack-Down On Bankruptcy Petition Preparers

Posted by NCBRC - November 13, 2013

A bankruptcy petition preparer who preyed on vulnerable mortgage debtors was sanctioned by the court in In re Shelvin, No. 12-39045, A.P. No. 13-3004 (Bankr. S.D. Tex. Oct. 4, 2013). In that case, under threat of foreclosure, the debtor sought assistance from CAYA Defense Network, an organization headed by Tederal Jefferson and represented as a provider of “educational services,” expert in foreclosure and securitization. The debtor sat through a three hour “educational” presentation on the laws related to home mortgage. After the seminar Mr. Jefferson agreed to prepare two Qualified Written Requests on the debtor’s behalf. At that time, the debtor agreed to pay Mr. Jefferson $800.00. The chapter 13 petition prepared by CAYA and filed by the debtor was insufficient in that it lacked schedules, statement of financial affairs, Form B22, and proposed plan. The debtor ended up hiring a lawyer to assist with her bankruptcy. In addition to assisting with her bankruptcy, her attorney filed an adversary complaint against CAYA and Mr. Jefferson.

At trial, the court did not credit Mr. Jefferson’s testimony that the $800 fee was for “educational services” and that the debtor was not charged for the QWR letters and bankruptcy document preparation. Instead, the court found that Jefferson, as a non-attorney who prepared for compensation a bankruptcy document for filing, was a “bankruptcy petition preparer” within the meaning of section 110. As a bankruptcy petition preparer the court found Mr. Jefferson violated a number of provisions in section 110.

The court found that Mr. Jefferson violated the Code in the following ways: failure to sign documents submitted to the court, (section 110(b)(1)); failure to provide written notice to the debtor prior to accepting compensation and preparing documents for submission to the court (section 110(b)(2)); failure to place “an identifying number” of the preparer on documents filed in the bankruptcy court (section 110(c)); rendering legal advice (section 110(e)(2)(A) and (B)); use of the word “legal” in an advertisement (section 110(f)); failure to filed a declaration setting forth his fee (section 110(h)).

The court found that each of Mr. Jefferson’s failures were intentional and made with intent to deceive. It summed up Mr. Jefferson’s business model as: “Mr. Jefferson’s actions in dealing with Ms. Shelvin and other members of the public reflect a carefully crafted scheme to take advantage of a segment of our society facing the loss of their homes with no perceived alternatives. Mr. Jefferson preys on the despondent hopes of those that have lost everything. Such is the mindset of the proverbial ‘snake-oil salesman.’”

Turning to the remedy, the court found that under section 110 Mr. Jefferson was obligated to pay actual damages, the greater of $2,000 or twice the actual damages, and reasonable attorney’s fees (section 110(i)(1)). Actual damages amounted to $550. The court rejected the debtor’s testimony concerning stress and emotional strife as insufficient to support a damage award. Thus, the court awarded $2,550 in damages and attorney’s fees.

The court also found that under section 110(l)(1) it was empowered to exact a fine or penalty in the amount of $500 per violation. Mr. Jefferson’s failure to disclose his identity in filed documents allowed the court to triple the fine. The court thus awarded an additional $9,000.00 fine.

Finally, the court ordered that its ruling be forwarded to the court in the Northern District of Texas where similar proceedings against Mr. Jefferson were underway.

Shelvin opinion

See also Belen v. Fundacion Lucha Por Padres Convictos Por Pension, No. 12-192 (Bankr. P.R. Oct. 2, 2013) (non-attorney organization violated several provisions of section 110 as bankruptcy petition preparers, and section 526(c) as debt relief agency, by preparing bankruptcy petitions without filing credit counseling report or requisite disclosure of involvement and fee, and instead using attorney, who was not involved in preparation of documents, to sign court filings. Defendants ordered to pay damages to individual debtors and $42,000 in fines to trustee for section 110 violations and enjoined from further violations of section 526).

Belen opinion



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