Preparing Petitions: It Irks the Lawyers, But Is It Lawyering?

Leo D. Wees is not a lawyer, but for $150 he used to help people in Boise, Idaho, fill out the forms to file for bankruptcy. Those who turned to Mr. Wees were by definition poor, but they considered his fee a bargain compared with what lawyers might have charged, and they were satisfied with his work.

''He appears to be thorough and attentive to detail,'' Terry L. Myers, a bankruptcy judge, said of Mr. Wees, ''and his work product shows it.''

Judge Myers nonetheless fined Mr. Wees $1,000 for misleading customers into believing they were receiving legal advice and ordered him not to charge more than $60 for filling out routine bankruptcy forms.

Judges and lawyers have always been wary of people who perform services often handled by lawyers, but a rapidly expanding cottage industry that helps people file papers in bankruptcy and divorce cases and other legal proceedings like preparing wills has drawn increasing attention from the bench and the bar.

In the last seven years, for example, Justice Department officials have filed almost 4,000 motions seeking to stop bankruptcy petition preparers or to reduce their fees.

Nevertheless, the current economic slowdown, combined with pending federal legislation that could make it more complicated and more expensive to file for bankruptcy, may lead more people to look for alternatives to lawyers.

Almost 1.5 million people filed for bankruptcy last year, and perhaps a quarter of them, or about 375,000, did not use lawyers.

Experts differ on whether the crackdown on petition preparers is a valuable consumer protection or a restraint of trade by a powerful monopoly.

Not surprisingly, the preparers -- who sell forms and typing services and are not allowed to give legal advice -- take the latter view.

''This is a fundamental turf war between bankruptcy lawyers and bankruptcy petition preparers,'' said Jason Searns, the general counsel of the biggest form-preparation company, We the People. ''They're essentially trying to take us out of the business. This smacks of antitrust, monopoly and price-fixing.''

Scholars say the crackdown arises from mixed motives.

''It's mostly a concern about competition, not a concern about quality,'' said David A. Skeel Jr., a law professor at the University of Pennsylvania and the author of a history of bankruptcy law.

But federal officials say they are trying to protect the public.

Maureen A. Tighe, a Justice Department official in Los Angeles whose office has filed more than 2,000 actions against bankruptcy form preparers, said they were ''a huge problem area in many parts of the country.''

Some actions pursued by the office involved large sums of money and serious fraud, mainly involving foreclosures and eviction. But most concerned the scope of the preparers' work and how much they charged.

Ms. Tighe rejected the assertion that the government's actions protected a monopoly enjoyed by bankruptcy lawyers.

''We have no interest in protecting the bar,'' she said. ''It's our job to protect the system.''

Ms. Tighe said petition preparers were concentrated in the West, particularly in places with large immigrant populations. ''It's a huge concern in California,'' she said.

We the People says it helped 20,000 people in 16 states file bankruptcies in the last year. The group's chairman, Ira Distenfield, said that in Santa Barbara, Calif., where the company is based, it handled a third of all divorces and more than half of all bankruptcy filings.

''We're kind of where H & R Block was 40 years ago,'' Mr. Searns said.

Paul J. Anfuso turned to We the People for help recently in filing his second bankruptcy. He had paid a lawyer $1,000 the first time, 10 years ago, when the bills he accumulated in supporting an extended family overwhelmed him. We the People charged him about $345.

The lawyer, Mr. Anfuso said, ''probably did no more work than they did, for three times the cost.''

''And,'' he said, ''the lawyer told me I couldn't declare certain things that I later found out I could.''

Mr. Anfuso, a nurse, filed for bankruptcy again when medical problems forced him to go on disability.

''I barely scraped up the money for them,'' he said, referring to the form-preparation company, which he called ''very knowledgeable and very friendly.''

''They didn't give you any legal advice,'' Mr. Anfuso said, ''but they gave me all the resources I needed.''

No one disputes that form preparers are cheaper than lawyers, who often charge $1,000 or more even for the simplest bankruptcy. Yet lawyers contend the form preparers charge too much for what they argue is, in essence, clerical work. They say that even a $200 fee implies that legal services are being provided.

''The goal is to make it unprofitable so they'll make me quit,'' said Mr. Wees, who says the judge's order limiting his fees has cost him $20,000 a year.

Deborah L. Rhode, a law professor at Stanford who is an expert in legal services, has criticized the legal system for not providing affordable services or allowing others to do so.

''In 'poor people's courts' that handle housing, bankruptcy, small claims and family matters, parties without lawyers are less the exception than the rule,'' Professor Rhode wrote in a law review article. ''Almost all the scholarly experts and bar commissions that have studied the issue have recommended increased opportunities for nonlawyer assistance. Almost all the major rulings on the issue have ignored those recommendations.''

There is evidence that paying for a lawyer may be a good investment. A report by a committee of the Los Angeles County Bar Association said, ''Statistical and anecdotal data both indicate that unrepresented debtors' cases are dismissed at a greater rate than those cases of debtors who are represented by counsel.''

It concluded, ''A trained attorney is clearly always preferable.''

If legislation to overhaul the bankruptcy system becomes law, bankruptcies will most likely become more expensive and less attractive to lawyers. Lawyers will, for instance, have to certify that they have investigated the accuracy of their clients' statements about their assets, debts, income and creditors, and lawyers will face penalties if the submissions turn out to be wrong.

Investigating such things costs money, which would drive legal fees higher. Some lawyers may decide that the consumer bankruptcy practice, which has never been particularly prestigious or lucrative, is not for them.

''People will have trouble finding a bankruptcy lawyer, or one they can afford,'' Professor Skeel said.

If enacted, the new federal law would not take effect for 180 days, giving debtors a window in which they may still file under the old system. The increase in filings that would probably take place in the short term and the greater complexity of the subsequent filings would further heighten tensions.

Last month, another bankruptcy judge in Boise, Jim D. Pappas, devoted a long decision to examining the assistance that Judith M. Scott, a We the People franchisee, gave to Kevin and Laura Doser. The Dosers' bankruptcy filing said they had $5,000 in assets and $67,000 in liabilities. They paid Ms. Scott $214.

Judge Pappas wrote, ''Ms. Scott's work product seems very professional.''

But he criticized Ms. Scott for providing her customers with a written overview of bankruptcy law prepared by a lawyer, saying that even referring a customer to a legal treatise amounted to the unauthorized practice of law.

He fined her $10 and ordered her to limit her fees in preparing bankruptcy petitions to $100.

Mr. Distenfield said that a 64-page opinion devoted to imposing a $10 fine showed a judicial attitude.

''It wasn't an opinion for the consumer but an opinion for his colleagues in the bankruptcy bar,'' Mr. Distenfield said. ''The judge was saying: 'Don't worry. We're not going to slow these guys down. We're going to eradicate them.' ''

All parties concerned agree that there is such a thing as the unauthorized practice of law and that it encompasses more than court appearances.

Steven Lubet, a law professor at Northwestern University who has advised We the People, said the difference between what form preparers and lawyers do was the difference between providing information and giving advice.

''People need to know that lawyers don't own the law,'' Professor Lubet said. ''There's lots of room for nonlawyers to talk about the law.''