Seller of Bankruptcy Software Held to be Bankruptcy Petition "Preparer"
The Ninth US Circuit Court of Appeals upheld a US Bankruptcy Court’s decision that the seller of web-based software used to prepare bankruptcy petitions qualifies as a “bankruptcy petition preparer.” The Court held that Henry Ihejirika, owner of the now-defunct Ziinet.com violated the bankruptcy code, which imposes certain obligations on bankruptcy petition preparers and penalizes negligent or fraudulent preparation.
Ihejirika, doing business as Frankfort Digital Services, Ltd. and Ziinet.com, sold access to various web sites that guided customers through the preparation of bankruptcy petitions and provided advice on bankruptcy law.
One of his websites, the Ziinet Bankruptcy Engine, represented itself being “an expert system” and claimed to know “bankruptcy laws right down to those applicable to the state” in which the user lived. The site claimed it could select bankruptcy exemptions for the debtor and offered customers with information on “loopholes” and “stealth techniques,” like how to hide a bankruptcy from credit bureaus. Nonetheless, each bankruptcy petition included the statement that “the contents of my documents are based entirely on my own research and no one gave me legal advice or told me to include or omit any information from my documents.”
After finding errors in a filer’s petition and learning that the filer used the Ziinet Engine, a bankruptcy trustee sued Ihejirika. The Bankruptcy Court ruled that Ihejirika committed fraudulent, unfair or deceptive conduct, and engaged in the unauthorized practice of law. The Ninth Circuit Court agreed saying that Ihejirika engaged in the unauthorized practice of law because the system “touted its offering of legal advice and projected an aura of expertise concerning bankruptcy petitions; and, in that context, it offered personalized—albeit automated—counsel.”