In re Brackens

Citation: 598 B.R. 420Docket: Case Number: 18-11125

Court: United States Bankruptcy Court, W.D. Louisiana; February 26, 2019; Us Bankruptcy; United States Bankruptcy Court

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A motion by the United States Trustee (UST Motion) sought to disgorge fees and impose fines on bankruptcy petition preparer Cheynita Sneed for violations of 11 U.S.C. § 110. An evidentiary hearing took place on January 9, 2019, with testimony from Ms. Sneed and debtor Promise Antwavette Brackens, represented by UST counsel Richard Drew. Following the hearing, both parties submitted proposed findings of fact and conclusions of law. The Court granted the UST Motion, ordering Ms. Sneed to return $300 paid by the debtor and imposing a fine of $250 for each of her three violations, totaling $750, payable to the UST. Additionally, she is liable to the debtor for $2,000 in statutory damages.

Jurisdiction and venue for the motion were established under 28 U.S.C. §§ 1334 and 1409, with all claims deemed "core" per 28 U.S.C. § 157(b)(2)(A). The Court emphasized its role in overseeing professionals such as bankruptcy petition preparers, reinforcing its authority to enter final orders on matters arising from federal bankruptcy law. The Court determined that the issues presented did not raise any constitutional concerns under the Supreme Court ruling in Stern v. Marshall, confirming its statutory and constitutional authority to issue a final judgment in this case. The Court upheld that disgorgement of fees is recognized within bankruptcy law, affirming its jurisdiction over misconduct complaints against professionals like Ms. Sneed.

The Court, pursuant to Bankruptcy and Civil Procedure rules, presents the following findings of fact: 

1. The Debtor filed a pro se Chapter 13 bankruptcy petition on July 23, 2018, with Todd Johns appointed as the Chapter 13 Trustee. The Debtor submitted four copies of Official Form 119, certifying that Ms. Sneed, a bankruptcy petition preparer, prepared most documents for the case, including the petition and plans.

2. Ms. Sneed operates "Low Cost Documents Services" (LCDS) in Shreveport, Louisiana, since March 2018. 

3. The Debtor discovered Ms. Sneed through LCDS's Facebook advertisements promoting bankruptcy filing services, including Chapter 7 and Chapter 13, and offering to convert Chapter 13 cases to Chapter 7.

4. Ms. Sneed is not a licensed attorney in Louisiana or elsewhere and has not collaborated with any Louisiana attorney for bankruptcy assistance.

5. The Debtor initially paid $200 for Chapter 7 assistance and later $100 for Chapter 13 assistance, totaling $300.

6. Ms. Sneed drafted the Debtor's bankruptcy documents without consulting the Debtor on specifics. The Chapter 13 plans only indicated proposed monthly payments without addressing the secured debt for the Debtor's automobile. Ms. Sneed advised the Debtor to list clothing as an asset, influencing her own drafting choices.

7. The Schedule A/B prepared by Ms. Sneed listed minimal assets: $300 in clothes, $50 in jewelry, and $110 in cash. Neither Ms. Sneed nor the Debtor filed the required declaration of compensation for the bankruptcy petition preparer, and Ms. Sneed failed to disclose her fees in the Statement of Financial Affairs.

8. Ms. Sneed has acted as a bankruptcy petition preparer in three other Louisiana cases and also offers services through her online platform for preparing documents in other states.

9. The Debtor's testimony was deemed credible, while Ms. Sneed's testimony lacked credibility.

Conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure are presented, with findings categorized under the Bankruptcy Petition Preparer Statute (Section 110 of Title 11). This statute, part of the Bankruptcy Reform Act of 1994, imposes penalties on non-attorney petition preparers who negligently or fraudulently prepare bankruptcy petitions. The rationale is that unregulated petition preparers often provide inadequate legal services, taking advantage of debtors' ignorance.

Ms. Sneed is identified as a "bankruptcy petition preparer" under § 110(a)(1) because she prepared documents for the debtor for compensation, as supported by her sworn statement and the debtor's testimony. Consequently, she is liable under § 110 for potential penalties.

The court notes Ms. Sneed's failure to file a required declaration disclosing fees received from the debtor, as mandated by § 110(h)(2). This section stipulates that such a declaration must accompany the petition, and failure to do so can result in forfeiture of fees and potential fines up to $500 per violation. Evidence reveals that no declaration was filed, despite Ms. Sneed's acknowledgment of receiving $300 from the debtor. While Ms. Sneed claimed to have prepared the declaration, the debtor credibly testified that it was not among the documents she submitted. Moreover, Ms. Sneed failed to provide the declaration to the court by the stipulated deadline, despite claiming to keep all documents. The court finds Ms. Sneed's testimony unconvincing and supports the debtor's account.

Credible testimony indicates that Ms. Sneed did not provide a signed compensation declaration to the Debtor, despite the Debtor filing all other required documents as instructed. The Court infers that no such declaration was ever prepared or delivered by Ms. Sneed. Consequently, the Court does not address Ms. Sneed's argument regarding the responsibility for filing the § 110(h) declaration. Ms. Sneed's reliance on a "contract" signed only by the Debtor, lacking her declaration under penalty of perjury, is deemed misplaced. Furthermore, she failed to disclose her compensation in the Statement of Financial Affairs, indicating neglect in her duty to inform the Court of her compensation as mandated by § 110(h)(2).

In addition, Ms. Sneed violated § 110(f) of the Bankruptcy Code by advertising her services as "Legal Services," which is prohibited for non-attorney bankruptcy petition preparers. The statute aims to ensure debtors are aware of their rights and the nature of services provided. The use of the term "Legal Services" constitutes a strict liability violation, regardless of whether the Debtor felt misled.

Lastly, under § 110(e)(2), Ms. Sneed is prohibited from giving legal advice. Although she claims she did not provide legal advice, her argument is undermined by the content of the "contract," which states she was not providing legal advice but does not negate her responsibility under the statute.

Ms. Sneed, a bankruptcy petition preparer, is found to have violated 11 U.S.C. § 110 by providing legal advice while preparing bankruptcy documents for the Debtor, which constitutes the unauthorized practice of law. Specifically, she prepared a Chapter 13 plan, necessitating legal judgments on claim classifications and treatments, indicating that her actions required legal expertise beyond a layperson's understanding. Consequently, the court concludes that she breached § 110(e).

Given these violations, the court mandates the forfeiture of all fees charged by Ms. Sneed, totaling $300, which must be refunded to the Debtor. Furthermore, under § 110(l)(1), Ms. Sneed is fined $250 for each of the three violations identified, resulting in a total fine of $750 payable to the United States Trustee.

Additionally, the court must award statutory damages as mandated by § 110(i)(1) for the violations, which include § 110(e), (f), and (h). The statute requires an award of either $2,000 or twice the amount paid by the Debtor, whichever is greater. As Ms. Sneed's actions triggered the statutory requirement, the court awards the Debtor $2,000 in statutory damages, highlighting that the court has no discretion in this matter once a violation is established.

Disgorgement of the $300 fee paid by the Debtor to Ms. Sneed and the imposition of $750 in fines are discretionary under § 110(h)(3)(B) and (l)(1) of the Bankruptcy Code, allowing the court to order forfeiture or fines for violations of § 110(f). The court determined that multiple violations occurred, justifying the disgorgement of the $300 fee and a fine of $250 per violation for three violations, totaling $750 payable to the United States Trustee. The Court found that Ms. Sneed violated § 110 by failing to disclose compensation from a Chapter 13 debtor, advertising her business as providing "legal services," and exceeding the scope of services allowed for bankruptcy petition preparers (BPPs). Additionally, Ms. Sneed is liable for $2,000 in statutory damages to the Debtor. The Court intends to issue a separate order reflecting this decision. Ms. Sneed, previously known as Cheynita Gordon, has the court's acknowledgment of her preferred name. The court emphasizes its authority to regulate individuals assisting bankruptcy debtors to prevent exploitation. Ms. Sneed operates LCDS, an unincorporated entity, with her husband involved in marketing. She previously worked as a paralegal for attorney S.P. Davis and has referred clients to him, although she has no formal association with any Louisiana attorney. The court notes the distinction between procedural requirements under Rule 2016(c) and substantive duties imposed by § 110(h), which obligate BPPs to ensure proper filing of compensation disclosures.