## Facts

- A Chapter 7 debtor used a web-based system sold by a nonlawyer-owned company to generate bankruptcy petitions, schedules, and related filing documents.
- The debtor paid a fee (about $219) to enter personal and financial data; the software then produced completed bankruptcy forms for printing and filing.
- The service was marketed as an “expert system” comparable to a skilled bankruptcy lawyer and claimed it could identify “loopholes” in bankruptcy law.
- The software did more than transcribe user-provided data; it guided users through legal choices and selected legal options, including exemption selections, framed as preferable or “best” for the user.
- The generated forms omitted the provider’s identity and compensation and included language implying the debtor prepared the documents without assistance.
- The United States Trustee, after reviewing the debtor’s filed documents and discovering the software’s role, brought an adversary proceeding against the provider under 11 U.S.C. § 110.
- The bankruptcy court found the provider was a “bankruptcy petition preparer,” violated § 110 disclosure and conduct rules, committed fraudulent/unfair/deceptive acts, and engaged in the unauthorized practice of law under California law; it imposed fines, ordered fee disgorgement, and entered an injunction.
- The Bankruptcy Appellate Panel affirmed, and the provider appealed.

## Issues

1. Whether a provider of web-based software that generates completed bankruptcy filing documents for a fee is a “bankruptcy petition preparer” under 11 U.S.C. § 110(a)(1).
2. Whether the software’s guidance and selection of exemptions and other legal options constitutes the unauthorized practice of law under California law.
3. Whether the bankruptcy court properly imposed fines, disgorgement, and injunctive relief under § 110 based on fraudulent, unfair, or deceptive conduct and other statutory violations.

## Decision

- The Ninth Circuit affirmed the judgment and remedies.
- The provider qualified as a “bankruptcy petition preparer” because, for compensation, it prepared documents for filing, even though preparation occurred through an online system rather than in person.
- The provider engaged in the unauthorized practice of law under California law by supplying individualized legal guidance and selecting legal options (including exemptions), exceeding permissible clerical assistance.
- The findings of fraudulent, unfair, or deceptive conduct were supported by evidence that the provider marketed lawyer-like “expert” services and concealed its identity and fees on filed documents.
- The fines, disgorgement of the fee paid, and injunction barring further petition-preparation activity in the district were authorized under § 110 and were properly entered.

## Legal Principles

- A “bankruptcy petition preparer” under 11 U.S.C. § 110(a)(1) includes nonattorney persons or entities that, for compensation, prepare documents for filing; the statutory coverage turns on function, not the medium or lack of face-to-face contact.
- § 110’s disclosure scheme requires petition preparers to disclose their identity and compensation on bankruptcy documents; concealment or mislabeling on filed forms can support findings of fraudulent, unfair, or deceptive conduct and statutory remedies.
- Under California law, permissible clerical assistance is limited to transcription or typesetting directed by the client; providing legal advice, recommending legal strategies, or selecting exemptions and similar legal options constitutes the practice of law.
- Bankruptcy courts may impose monetary sanctions, order fee disgorgement, and grant injunctive relief under § 110 when a petition preparer violates statutory requirements or engages in fraudulent, unfair, or deceptive conduct.

## Conclusion

The Ninth Circuit upheld sanctions against a web-based bankruptcy software provider, holding it was a § 110 bankruptcy petition preparer, that its exemption-selection and legal guidance features amounted to unauthorized law practice under California law, and that concealment of its role and fee justified fines, disgorgement, and injunctive relief.


In re Reynoso, 477 F.3d 1117 (9th Cir. 2007)