4.2 Schedule D

    4.11 In General

The Schedule D is where secured obligations are listed.  It is important that the Schedule B, C, and D be coordinated with each other.  For example, if there is an item of collateral listed on Schedule D, then that item better be listed on Schedule B.  In addition, the value listed for the collateral needs to be the same.  Coordination with Schedule C is important because you need only exempt the “equity value” of items used as collateral.  In addition, each of the items on the Schedule D must appear on the Statement of Intent.

    4.12 Perfection

Associated with secured debt is the concept of perfection. Some secured obligation, such as consensual liens or title liens, are not said to be “perfected” until certain documents are signed and filed with the appropriate State Office. (In Utah the County Recorder, Department of Motor Vehicles, or Secretary of State’s Office.)  Until this filing occurs, the debt is not perfected. In other words it may not be entitled to secured status.  If that is the case, the debt goes on the Schedule F and the Trustee may sell the collateral.

    4.13 Priority

Another concept that you need to be aware of is priority. It is possible for more than one creditor to claim an interest in the same collateral. If the value of the collateral is not sufficient to cover all of the debt pledged against it, it can become necessary to determine who is entitled to what share of the proceeds.  In other words, who is entitled to be satisfied first if the property were to be sold.  Priority is based upon the date of perfection of the obligation. In other words, whoever perfects first is in first place, whoever perfects second then has second priority and so on.

It is also possible for creditors to have mixed priorities.  For example, Creditor A may have an interest in items 1, 2, and 3; while Creditor B has an interest in items 2, 3, and 4.  It is important to clearly indicate on the Schedule D the relative priority of each creditor on each item of common collateral. 

    4.14 Leases

A lease is not actually a secured debt and really should not appear on schedule D.  However, if the Debtor is going to Reject (get out of) a lease, it is wise to place it on the Schedule D (with a notation that it is a lease) so the Trustee understands that the property on Schedule B (unless you helpfully indicate that the vehicle is leased and place a zero¹ in the value column) actually belongs to someone else (if the Trustee neglects to look at Schedule G).  This also ensures that the creditor receives a copy of the Bankruptcy Notice.  For some reason the Bankruptcy software does not place Schedule G items on the matrix and they will not receive a court notice.

    4.15 The Trustee’s Interest

The Trustee’s interest in Secured property is to determine if there is sufficient equity in the property to allow a reasonable distribution to creditors.  The equity in secured property is added to the equity in other non-exempt non-secured property to make that determination.

  4.2 Schedule E

    4.21 In General

Priority debts are entitled to special treatment under the law.  For example, they may have special collection or enforcement rights (government fines and child support), are non-dischargeable in bankruptcy (i.e. they never go away), or are entitled to priority in payment by the Bankruptcy Trustee.  If you would like more information on these types of debts, see 11 U.S.C. §507, 523, and 727; and Utah Code Annotated §78-23-13 (a)(b)(c)(7).

    4.22 Tax Debt

There are special rules when it comes to tax debt, and all taxes may not be priority non-dischargeable obligations.  For example, if more than three years have passed since any non-business non-penalty taxes were filed; then they become general unsecured taxes.  As such they may be discharged.  In addition, taxes can have secured status if they have been perfected by the filing of a Tax Lien with the County Recorder.  In a Chapter 7, all taxes are listed on Schedule E (priority and unsecured) or D (secured) as applicable.  In a Chapter 13, it is necessary to split the taxes between priority (Schedule E), secured (Schedule D), and unsecured (Schedule F) status.

    4.23 The Trustee’s Interest

Generally the Trustee will ignore the Schedule E unless it is the time of year when tax refunds are typically received.

[Note: now September through May.]  Since a tax refund is an asset, the Trustee will want to determine if the Government has the right to offset the tax refund against tax liabilities.

  4.3 Schedule F

    4.31 In General

Unsecured debt includes all of the obligations that do not fit into one of the categories previously discussed as well as the unsecured portion of any secured obligation. For example, if you owe $5000.00 on a car which is worth $3000.00, $3000.00 of the debt is secured and $2000.00 of the debt is unsecured.  This is of particular importance in Chapter 13 cases.  In Chapter 7 it doesn’t matter as much.  In either case, the unsecured portion of a secured debt is usually not listed separately on the Schedule F.

    4.32 Complete Information

As with all of the other schedules it is important that the Debtor provide all of the information requested by the Court.  This is particularly true in Chapter 13 cases.  Account numbers are needed because this is the number used if the Trustee pays money to creditors.  The address is important because a creditor is not barred from collecting against a Debtor unless they know about the bankruptcy.  The date and nature of debt is important to the Trustee, because the description may give clues about prior business activities or non-disclosed assets.  The U.S. Trustee’s Office also uses this information in certain litigation against debtors.  The exact amount of the debt is important in Chapter 13's because it is used to calculate the plan payment.  In Chapter 7 the amount is not as important.  An estimate or “unknown” is okay if the represents the debtor’s best effort

  4.4 Schedule G

    4.41 In General

An executory contract is simply an agreement under which both sides have continuing obligations to each other. Typical obligations in this category include:  apartment rentals, utilities, book and tape clubs, spa memberships, cell phones, leased cars, rent to own furniture, or leased business equipment.  If the debtor does not own a home, some entry should appear on this page to either indicate that the debtor is paying rent or living with someone else.

    4.42 Accept or Reject

There are two basic options in connection with executory contracts. You may accept the contract, meaning that you either retain the property or continue receiving the service, and continue to make each of the regular payments as they come due. You may not accept an executory contract unless you bring the account current.  Alternately you may reject the executory contract which means you cancel the service and return the property if any.

In completing this form you need to indicate the amount of money that is due each month on the contract and whether the Debtor intends to Accept or Reject the contract.  Notice is then provided to each creditor whose contract is rejected.  Notice is also provided to all creditors whose contracts are accepted.  Failure to accept a contract can result in it’s automatic rejection 30 days after filing.

  4.5 Schedule H

It is very important to determine if there are any cosigners on any of the Debtor’s obligations.  A cosigner is an individual who guarantees payment of a debt.  If the debtor does not pay, then this individual will be required to pay the debt.  Sometimes debtor’s will “reaffirm” on debts to protect their co-signers.  If the debtor is not going to protect a cosigner it is wise to add the cosigner as a creditor on the Schedule F.

5.0 The Budget

  5.1 Schedule I

Section 6 of the questionnaire is the part that corresponds with the schedule I.  The schedule I provides information about the debtors income and family. This is important for a number of reasons.  First, it indicates marital status. If the debtor is married, the trustee will want to know if their spouse has any property that has not been listed on their bankruptcy statements and schedules. Because married parties are presumed to own half of the property acquired during the marriage, the Trustee may have the right sell half of a spouses property.

As a practical matter we always list the property of a spouse and exempt it, show that it is encumbered, or that it is separate property; so the Trustee knows the status of the property and does not ask lots of questions at the First Meeting of Creditors.

If the debtor is divorced, the trustee will want to cross check the statement of financial affairs and the assets schedules to see if there is any property that was given to the ex-spouse that the debtor still has an interest in or may not have received yet. Like equity in a house that is going to be sold.

The name and address of the employer, what their occupation is, how long they have been there, and their income must be listed accurately.  This information is cross checked with the statement of financial affairs question 1.  Source of income other than earning (such as alimony, child support, unemployment benefits, or social security) must also be listed on this schedule.  This information is crossed checked in question 2 of the statement of financial affairs.

[Note: this information is now cross checked with Form 22 and the documents which must be supplied to the Trustee, such as pay stubs, tax returns, and bank statements.]

It is also important to list each of the debtors dependants (meaning children or individuals in the home other than the spouse). This information tell the trustee how may individuals are in the home and if the budget information on the next schedule is reasonable.  This is particularly important in Chapter 13's.

  5.2 Schedule J

Schedule J is where we list the debtor’s monthly living expenses. This is important because the court will only allow a reasonable amount of expenses in each of the categories.  The idea is that if you have enough money left over at the end of the month after payment of reasonable living expenses you should file a chapter 13 and make repayment to your creditors.

The court has a range of acceptable numbers for each of the categories, so one of the things that I do when I go through it is to double check that the amounts look reasonable.  While these amounts change from time to time, the current recommendations are:

            Phone -$75. If they have more than $75, the court wants to know why. Is it just because someone spends too much time on the phone (which is not acceptable), or do they need the phone for their business (which is okay).

            Cable or Satellite TV - $30 to $50.  Is sometimes considered part of the entertainment budget.

            Home Maintenance - Can be higher for a house than an apartment.

            Food - up to $200 per person, unless you are a single male $250, have a job that keeps you on the road, or you are on a special medical diet.

            Clothing - $40 to $60 dollars for one person, $70 to $80 for a family, more for a family of more than 5.

            Laundry and Dry-Cleaning - $10 normal to $30 dollars for a big family. 

            Medical and Dental - $40 to $70 depending on the family. If special needs, the actual costs.

            Transportation - $120 to $150 depending on how far they travel. This also includes car repair, oil, and gas.

            Entertainment - $70, more for very large families.  This entry is nice because it is an acknowledgment that a husband and wife really ought to go on dates while married. 

            Charitable Contributions - up to 15% of income.  Actual payments made to an IRS recognized charity. What the court looks for is people that suddenly start paying tithing just before filing.  This entry is crossed checked with the statement of financial affairs to see what was done during the last year. The amount the court allows in this box is 1/12 of what they put in their statement of financial affairs.

            Insurance - The actual amount.  The court watches for auto Insurance. If the debtor has not listed a car on their statements and schedules, but they are paying for car insurance, that raises some questions. Also if they have a huge auto insurance bill, that often means they are paying insurance for their kids, and that is something the court will generally not tolerate.  They believe children over age 18 ought to pay for their own insurance.

            Installment payments - These are the things like car payments or other major purchases.  The trustee will look to see if the bill is listed on the debtors statements and schedules.  Do not list a bill for something being surrendered.

[Note: be sure to list the payments of any items being reaffirmed, failure to do so may result in the inability to reaffirm.  The new law requires that the debtor have the capacity to make the payment as shown by the budget.]

            Alimony, Maintenance, or Support - Sometimes these amounts are deducted automatically from an individual’s pay check.  If so, be sure that these amounts are not listed twice.  Once on schedule I and then again on schedule J.

            Payments for dependents not living at home - This can include child support, but most often in Utah it is used for Missionary payments. 

            Expenses from operation of business - Unless these amounts are nominal (under $200), they should actually be placed on the “business income and expense form”.

            Other - At the bottom the debtors list any other expenses they may have. Some extra expenses, like tennis lessons or ballet lessons are not consider by the court to be necessary expenses.  Such items should not be listed. Court fines, penalties, and restitution should be listed.

[Note: that the IRS expense guidelines are now used to determine what is reasonable.]

Once the Schedules I & J are completed, they should be compared to see if there is money left over that could use to pay back their creditors. If it’s over $150, the U.S. Trustees office will object to their bankruptcy and can throw it out if they prove that the debtors make sufficient income to make a reasonable (20-30%) return to creditors. The bankruptcy code has provision that says a case can be dismissed for abuse of the bankruptcy system.  The court is currently interpreting abuse of the system to be filing a chapter 7 when you could file a chapter 13. 

[Note: new form 22 is used to make this determination in cases over median income.]

6.0 The Statement of Financial Affairs

Question number one asks for information about the debtors income. However, it only applies to employment or business earnings. This question is important because it is a cross check of the Schedule I where the debtor lists it’s income. So what the trustees do is they will look at the amount of income received, divide it by the number of months, and double check that the income on schedule I is the same. It is a way to check if they are under reporting their income on their budget page to make their financial worse than it actually is.  The first entry will be year to date, so from January to whatever date it is your filling the bankruptcy. Last year will be the full tax year, and then the prior year is the full tax year before that.

Question number 2 is for income from sources other than employment. Things like social security, child support, alimony, disability, unemployment benefits, those kinds of things.

Question number 3 talks about payments to creditors in excess of $600. There is a rule that says if you pay a creditor more than $600 in 3 months prior to filing the bankruptcy and that payment is not a regular monthly payment, the court can ask the creditor to give that money back. So this is kind of a cross check to make sure that there won’t be problems of that type. Regular installment payments, like on a car or a house, are not a problem. If the client is paying a past due bill, then it is a problem.

Question 3c is the same thing but it is for relatives or anybody who is familiar with the debtors financial circumstances.  This rule goes back one year. Over $600 to a relative to pay back a loan in the last year, the court can ask for that money back. This becomes a particular problem in January through May because people get their tax refunds back, and who do they pay first? Family, and the court makes the family give that money back.

Question number 4 has to do with any lawsuits the debtor is a  party to. This is important to the Trustee because it may help him find assets. If you are suing someone to collect a bill, that law suit then belongs to the court Trustee, and they can collect the bill to help pay your creditors. Or it may be used by our office to know who we need to send notices to. If they have listed a lawsuit, and they didn’t list them back in their list of creditors, it is kind of a cross check for us. Also we send notices to each of the courts, so the court doesn’t them to garnish wages or do something else. 4b talks about property that has been taken from them by creditors - such as a garnishment.

Question number 5 has to do with repossessions, foreclosures, and returns. This is most often a car, a loan, or they take back the car and they sue them for deficiency. What the Trustee wants to know is: was the car worth more than the debt. If it is, then the Trustee, on certain occasions, can go  get the vehicle back, re-sell it for a correct amount, and use the money to help pay creditors.

Question 6a- assignments. This is where the debtor gives property to someone else to sell or dispose of it for them. Sometimes the debtor forgets to tell the court that this property is out there, even though it has not been disposed of. For example, lets say you had a car and you took it to a car lot to sell it on consignment.  If it is still sitting on the lot and it hasn’t been sold, then the Trustee can take that vehicle and sell it himself.  6b this talks about receivers. Sometimes when you get sued, a creditor will have someone seize your property and hold it for later sale. If it hasn’t been sold yet, this is to let the Trustee know, so he can get it and sell it.

Question 7 has to do with gifts. Donations to charitable contributions have to be to an actual acknowledged charity. If they don’t have non-profit status, the trustee can make them give the money back. The law use to be that any charitable contribution over a certain amount had to be returned to the Trustee. There was a situation down South where a church burned down and a business man donated $ 30,000 to the church to help them rebuild their chapel. Then he ended up filling bankruptcy, didn’t expect to, and the Trustee asked the church for the $30,000 back. The church had to give it back after litigation, and congress ended up changing the law because of the unfairness of that situation. They had already spent the money to rebuild the church, there was no money to give the Trustee.

Number 8 has to do with losses from fire theft or in gambling. Most of the Trustees look at this one to look for insurance proceeds. If you had a fire and the insurance company owes money to you for that fire, that is an asset the trustee could take to pay off your creditors. Of more importance for us on question 8 is if the debtor lists gambling losses.  If they do, that is a real warning sign for us.  There is a code section that says an individual has to keep good records of their financial affairs. Most people who gamble don’t keep records of their gambling losses- where the money comes from, how much they lost, and stuff like that. A Trustee can ask the client to provide  records proving the losses and if they can’t then he can either have their bankruptcy thrown out completely or at least get attorneys fees for bringing the law suit against the debtor.

Number 9 is where we put the fees that I receive from a client prior to the filing of the bankruptcy. It is important that we note what this money is for. This is also where we would put money payed to other bankruptcy attorneys or debt repayment plans.

[Note: it is also a good idea to itemize expenses like the filing fee or credit briefing class, because they are not fees.]

Number 10 has to do with transfers of property.  A lot of people, when they go to file a bankruptcy, don’t want to loose things, so they give things away. Like their car, or a piano, or something valuable. That of course is inappropriate and so the court wants to know everything they have given away in the last year, so the trustee can get it back. This can include sales.  So if they have yard sales or they sell any property they need to list that because that is the second common way that people hide things. They will sell a $5,000 car to a relative for $100. That is obviously not fair, so  the court will take the car back and the relative is out $100 they payed for the car and the debtor loses the car. So not a good plan.

Number 11 has to do with bank accounts, closed accounts. For example, another way that people hide money is they close their bank accounts just before they file and they put the cash in their pocket thinking no one will know. Well if they say they closed their bank account two days before they filed bankruptcy, and they had $2000 in it when they closed it, the court will ask them where the money went. That is why this question is important.

Number 12. Safe deposit boxes. A lot of people keep valuables in their safety deposit boxes. Like jewelry, stocks, bonds, and important papers. That is why they ask about this. It is to locate anything valuable that might be in that safety deposit box.

Number 13 has something to do with something we call set-offs. A set-off is when you owe someone money, and they also owe you money at the same time. so the two debts sort of cross and you would think they would cancel each other out, except they don’t. If you file a bankruptcy , your obligation to that other person can be wiped out, but their obligation to you can be collected by the bankruptcy court. Lets say someone owes you $2000, you owe them $2000 also, but you have $10,000 in total creditors. The trustee goes and gets the $2000 from them and puts it in a pot and shares it with everybody and the person you owed that $2000 to maybe gets $500 back. So it can be quit unfair in its applications, but the idea is that the court wants you to treat all of your creditors exactly the same so as not to prefer one over another.

Question number 14 has to do with property that does not belong to you, but it is in your current house or apartment. This is to do a couple of things: first, it is to protect people when you actually don’t own the stuff that you have in your possession. But the other thing is for the trustee to check to see if you have stuff that you don’t think is yours but really is. For example, mom and dad give you a couch that you keep in your apartment. If mom and dad don’t expect that property back, it is really a gift. It is yours and it is an asset that needs to be dealt with in your bankruptcy. If in fact, they expect it back, it is not yours. Quite often around here, we have parents who go on missions, so they have their children keep track of their property for them, and they expect it back when they get back. Obviously, the court can’t take does items.

Question 15 asks for their address going back for the last three years. Part of the purpose for this question is to make sure they can file in Utah. There is a rule that says you can’t file unless you have lived in the courts jurisdiction for at least 91 days. This a way we can double check and make sure they qualify to file in Utah.

[Note: under the new law it also has to do with the exemptions you are allowed to claim.]

Question 16 has to do with former spouses and community property states. The idea is if with in the last eight years you lived with someone in a community property state, half of their property may belong to you.

Question 17 has to do with the environmental protection agency. We don’t get very many  of these. This is if you run a gas station or bury toxic waste on your property. There are special rules regarding these situations, and some of these debts do not go away.

Question 18 is important because it identifies any businesses that the debtor may have an ownership interest in. This is important for a couple of reasons: first of all, a business can be an asset. If they own part of a corporation or part of a business, that is an asset the trustee could take and sell to help pay off some creditors. So there are a lot of warnings I need to give a client if that is their situation, so they k now what is going to happen, and their partners don’t freak out when they hear that the trustee wants to an ownership interest in their company. This is also a place the trustee will look to see if there are any assets hidden away somewhere. Lets say you use to run a lumber mill, and you don’t do that anymore. The Trustee will want to know what happened to all of the buildings and equipment, the tools, and the inventory from that business. Are they still sitting in your backyard; have they been disposed of? What happened? Because if they are still around, and the business is not functioning, there is no business exemption for those tools, so the court can take them and sell them.

Questions 19 through 25 do not have to be answered unless they are currently involved in a business.  For most of our clients those questions won’t be answered.

Question 19a is a list of all the debtors book keepers and accountants that have your financial records. If you have a complex financial situation, the Trustee can gain access to all of your financial records and see what you have done with your money to make sure you have not been hiding anything somewhere.  19b is anybody who audited your records or prepared a financial statement for you. Those people may have records of your financial affairs. This can be very important to a trustee because he is going to compare this financial report with your current bankruptcy papers. If the old financial statement showed that you had all of these cars, buildings, equipment, and money and you don’t show it on your current papers, they are going to wonder where all of that stuff went. Are you hiding it somewhere? Or did it really get used up or taken away by creditors? 19d is similar. It asks for any financial statements that you have prepared for lending institutions. In other words, when you go and get a loan, you fill out a loan application that lists all of your assets, income, etc.. The trustee will compare that to your current information on your bankruptcy to see why they are different. And they tend to be different because most people when they get loans, lie about their assets and inflate the values. They want it to be high, so they can get the loan, but when they file bankruptcy, they want it to be low, so they don’t loose the property. The debtor ends up in a real dilemma because if they lied in their current bankruptcy papers, that means the bankruptcy can be thrown out. They have committed a fraud against the bankruptcy court. On the other hand, if they are telling the truth on their bankruptcy papers, but they lied on their application. That may make that debt non-dischargable because it was fraudulently incurred.

Question 20 has to do with inventories. Inventory is property that a business holds to sell to people. Trustee wants to look here because if there have been big inventories prior to the filing of the bankruptcy and now there is no inventory, they want to know what happened to that inventory.

  Question 21 and 22 has to do with who are the officers or directors of any business that you are involved with. Most often, the trustee uses this to find out who he can sell your interest in property to. Usually, other partners in your business are more interested in buying than having the trustee sell the clients share to somebody that knows nothing of their business. Also under 22, the Trustee wants to know about any people that withdrew from the partnership in the last year. Sometimes they withdraw and take large amounts of money and property with them as part of a settlement or pay-out. Since that may not be a fair distribution of the assets, the court can sometimes get that money back.

Question 23 is a follow-up to question 22. They want to know what the business has paid to any body during the last year.

7.0 The Statement of Intent

  7.1 In General

Debtors generally have three options in connection with secured debt. They are surrender, reaffirmation, and redemption.

  7.2  Surrender

Surrender occurs when a debtor returns to a secured creditor the property which secures its claim. If property is surrendered to a secured creditor, the entire debt is discharged.  There is no deficiency as in the case of a normal repossession.

  7.3  Reaffirmation

Reaffirmation is when the debtor wishes to retain the collateral and continue making the regular monthly payments.  Reaffirmation most often occurs in connection with homes and cars.

  7.4  Redemption

The bankruptcy code provides that if the debtor can make a lump sum payment to a creditor of the current fair market value of their collateral they must transfer clear title to the property.  Redemption is most often used when the collateral value is much lower than the amount of debt.  If a creditor will not voluntary enter into a lump sum redemption, a court hearing can be scheduled before a judge to force them to do so.

8.0 Compensation Statement of Attorney

As part of the Bankruptcy Pleadings the attorney must disclose the amount of compensation he has agreed to receive.