Proper pleading preparation
is an important key to effective Debtor representation. It takes time to do it right, but the time
you spend on the front end will save you a lot of time, effort and grief later.
Some helpful material can be found below and on the left.
Clicking “Annotated”, on the side bar, will
take you to a PDF format document entitled “Annotated Petition, Statement of
Financial Affairs, and Schedules for Bankruptcy Practitioners” prepared by the
Office of the United States Trustee in Washington, D.C. This is a set of pleadings with yellow boxes
high lighting the most common errors made by debtor’s counsel.
Clicking on “Check List” will
take you to a WP format document entitled “Accuracy Check” used by the Trustee
or his employees when examining statements and schedules for errors.
Clicking on “Deficiency
Checklist” will take you to a WP format document that you can use to ensure
that you have prepared all the necessary pleadings for filing.
The following material includes excerpts from material I use to train my own Paralegals in the preparation of the Bankruptcy Statements and Schedules. In addition, you will find italicized notes regarding the impact of the Reform Act.
2.0 The Voluntary Petition
2.1 The Petition Page
The first thing of importance
on the petition page is the name of the debtor and any aliases by which the
debtor has been known in the last eight years.
This includes prior married or maiden names. Part of the reason that names are important
is that many debtors incur debt in more than their legal name, often as a
result of a fraudulent intent on their part.
If you have a case in which there are many aliases, it is important to
warn the debtor of the possibility of creditors filing a non-dischargeability
action based upon fraud. An alias can
also be a business name.
The next important entry is
the debtors social security number. Under current
rules the debtor is required to show proof of their social security number at
the First Meeting of Creditors. Part of
the reason for the requirement is that many individuals were filing multiple
Bankruptcies using false names and false social security numbers. On occasion they would pick a number of an individual
who was actually living which resulted in errors on that persons
credit report. The social security
number is also used by the internal revenue service to locate missing debtors
and to identify potential assets.
Next of importance is the debtors
address. It is important for the debtor
to be a resident of the state of Utah for jurisdictional purposes. The court will check the address to determine
if the court has proper jurisdiction to hear the debtors
case. In addition, the venue (or location)
of the First Meeting of Creditors is based upon the debtors address. If you will refer to the chart in your text,
you will note that Utah has been divided into 3 Districts. Debtors living in the Northern District will
have their hearings held in Ogden. Debtors living in the North Central District
will have their hearing held in Salt Lake City, those living in the South Central District will have
their hearing held in Provo, and those living in the Southern District will have
their hearing in St. George.
On the Petition the debtor
must also assert that they have been domiciled (lived), had real property, a
business, or major assets within the state of Utah for the greater portion of the 180 days prior to
filing. In practical terms, this means
that the debtor must live in the State of Utah for at least 91 days prior to filing their
bankruptcy. If the debtor leaves the
state after filing the petition, that is not a problem although they must
return for their 341 hearing.
As a note, this same information
is verified by Question 15 of the Statement of Financial Affairs. There is often more than one place in the
bankruptcy statements and schedules in which information is requested about the
same facts. This is a cross check for
the Court and the Trustee to determine if the debtor is falsifying any of the
information on their paperwork.
Next it is important to
identify the type of debtor involved.
Most are individuals. However, there are certain
rules that apply to businesses and therefore the specific type of business and
it’s nature must be listed if the debtor is a business.
Next a declaration must be
made as to the nature of the debts listed on the bankruptcy schedules. If debt is primarily consumer then the
consumer/non-business box is checked. If
over fifty percent of the dollar amount of the debt is from the operation of a
business then that particular box is checked.
Next a declaration must be
made as to whether the debtor has sufficient assets that a return is available
for unsecured creditors. In most cases
there will be no return so that particular box should be checked. If it appears that there is substantial
equity in the estate then the other box is checked. The computer program calculates this
[Note: if this box shows assets be
sure to warn your client that the trustee may take property from them.]
As to the remaining boxes on
the first page of the voluntary partition entries must be made estimating the
total number of creditors, total of assets, and total debts. These are also calculated automatically by
the BestCase program.
On the second page of the
voluntary petition the debtor must disclose whether they have filed any bankruptcies
within the last eight years. As a
practical note, it is always wise to list the last bankruptcy filed by the
debtor even if it is more than eight years ago.
This question is related to jurisdiction. Also be sure to add the Chapter and Disposition
of the case. A debtor may not file a new Chapter Seven within eight years of
the filing date of the previous Chapter Seven.
The debtor is also required
to list any bankruptcies that may be related to the one they are currently
filing. This would include a bankruptcy
filed by a spouse, a business partner, a creditor of the debtor, or by any
businesses that my be partially owned by the debtor
(or that may own the debtor).
The debtor signs the
documents under penalty of perjury. This
means that if the debtor lies on their bankruptcy statements and schedules, and
a separate legal action (or Motion) is filed against them in the Bankruptcy
Court, their case could be dismissed and their discharge denied.
The last item I want to
mention on the voluntary petition is the Exhibit B. Previously this was a separate pleading that
was attached to the bankruptcy paperwork.
The Exhibit B is an affidavit signed by the attorney certifying that the
attorney explained to the debtor their ability to file under chapter seven,
eleven, twelve, or thirteen of the bankruptcy code. The Court also requires the filing of a
separate document certifying that this was done.
[Note: under the new law
attorneys can be sanctioned for failing to provide this information.]
3.0 Assets and Exemptions
3.1 Schedule A
The Schedule A is the place
were a debtors interest in real property, if any, is listed. Real property includes homes, bare ground,
deeded time share units, mobile homes (if the ground beneath is owned), and any
other interest in real property (except rented property which appears on the
In describing the property
and its location it is generally best to describe residential real property as “Home
at (Street Address)”. For recreational
property put “Recreational Property in ___________ County”. In other
words, use words to describe the type of property and give a general idea of
the location either by street address, city, or county.
An interest in real property
is generally designated by deed or nature of interest. As a result the simple explanation for
interest would be Deed, Warranty Deed, Quit Claim Deed, Fee Title, or Life
In describing the fair market
value of the debtors interest in the property it is
important to note that if the debtor only owns a percentage of the property,
say a one third interest in a recreational cabin, the value of the debtors
interest is one third of the entire fair market value. To avoid confusion it is best to say “one
third of” and then insert the value.
Unfortunately, the computer program does not allow you to do that. So the next best thing is to expand the
nature of debtors interest in the property to include
the additional information. For example “one
third interest by deed in property valued at $100,000" then in the current
market value blank put “$33,333.33".
3.2 Schedule B
The Schedule B is the place were the debtor indicates every interest he or she has
in property that is not real estate.
Most of the categories of personal property are self explanatory, but a
few items should be noted.
First it is very important to
include beds, clothing, jewelry, and miscellaneous household items like
bedding, linens, dishes, pots, pans, and silverware. Almost every individual has these items, but
considers them of such inconsequential value that they tend not to list
them. Unfortunately, the court views
such omissions as an intent to deceive. Since they assume that everyone has them the
failure to list them will often cause problems at the First Meeting of
Creditors. The Trustee will place the
debtors under oath asking if all the information contained within their
statements and schedules are true and accurate.
Then the Trustee will ask if they have clothing or beds. When the debtor indicate
in the affirmative the Trustee will then ask them why they lied on their
papers, and may then inquire as to what else they may have falsified.
You may type a number of
items as a block under a particular type of property with the total value for
the items in that category in the right hand column. However, if you do so, after each separate
item place it’s value between parenthesis. For example: “7 beds ($200), couch ($150),
table ($50) and 4 chairs (100)”. This
allows the Trustee to quickly enter the totals of each type of property into
his bankruptcy software and to make a quick assessment as to whether the listed
values are reasonable.
Next I need you to look at
property type twelve, “interests in IRA, Erisa, Keogh, or other pension or
profit sharing plans.” There is current
case law that says 401k and IRA accounts are exempt from seizure by the
trustee. There is a conflict with Utah exemption law that says any contributions in the last
year are not exempt. Some trustees still
ask for information that is important under Utah Law. So, if you are dealing with an exempt asset
it is important in the descriptive portion of this item to note the amount of
money the debtor has contributed to the plan during the last 12 months. For example, you might say “401k ($32,000 total, $1,100 in last year;
not property of the estate)” for the description and then enter a zero in the
far right column for current value. If
the asset is not exempt, it’s full value appears in
the far right column.
As to property type thirteen
and fourteen, which are interests in businesses, it is important to enter the
name of the business and it’s type. For example you might say “Phil’s Creations,
Inc.” then in
the far right column is listed the fair market value of the business. This is the balance sheet value of the
business. This means total assets of the
business minus total liabilities of the business. In any case where a business interest is
listed, it is important for us to obtain a balance sheet from the debtor. The Trustee will often want to know what
assets or liabilities the a company has in order to
determine whether the debtors interest in that company should be sold.
Under property type sixteen,
accounts receivable, it is important to note if any of the amounts are believed
to be uncollectible. As a result, under the
description you might say “Miscellaneous A/R ($5400, collectable amounts
estimated at $2000)” with the actual collectible value of the accounts
receivable listed in the far right column.
Under item twenty-five it is
important that each of the vehicles be listed separately and that there be an adequate description including year, make, and
model. Give the trustee enough
information that he can do a blue book check, or attach a copy of the printout
As a final note, if the
debtor is married and only one party is filing, both parties joint property
should be listed on the schedules A & B.
However, clear explanation should be made as to the ownership of the
property and if it is subject to debt.
For example, a vehicle titled in the husbands name (wife only filing),
but purchased during the term of the marriage might be entered as:
1999 Honda Civic
($7,5000 fmv, subject to a loan in favor of Zion’s Bank in the amount of $5,500.00, Purchased during marriage.)
Note that only the value of
the wife’s interest in the vehicle appears in the far right column, and that
she has a equitable interest in half the value of the
vehicle. It should also be noted that
she may not be able to claim an exemption in this interest because she is not
on the title.
Separate property should be
listed on an attachment to schedule B with the following disclaimer at the top:
"Debtor claims no interest in
the following property owned by debtor’s spouse prior to their marriage:"
3.3 Schedule C
3.31 In General
One of the more difficult
tasks in the preparation of a bankruptcy is to determine the exemptions to which an individual may be
entitled. The following material should
help you with that process.
3.32 What are exemptions?
Congress has determined that
individuals filing bankruptcy should be able to retain certain items of
property. The theory being that you need certain basic items to sustain your
life and start over economically. Exemptions typically include things such as
clothing, a minimal amount of household goods, and some equity in a home. Exemptions are listed on the Schedule C.
While congress has establish federal exemptions, they have also given each
state the right to set their own exemptions that apply to bankruptcies filed
within their state. In Utah these exemptions are found in Utah Code Annotated §78-23-1
et seq. If you will look at the two page
chart in the appendix to this lesson, you will see a list of these
exemptions. In the left hand column is
the code section referencing the particular exemption, in the middle is a
description of the property that is exempt, and on the right is any dollar
limitation that applies to the exemption.
In some categories, such as “Health aids” (the 10th one down)
there is no limitation. This means that
the item (or items) are exempt regardless of
value. You will also note that in the
cases where there are dollar limitations there are two amounts. The higher amount applies to a married
couple, while the lower amount applies to single individuals.
3.33 Common Exemptions
Some of the exemptions are
used regularly. Some you may never
see. Others perhaps
once or twice a year. When you
are first learning to do exemptions, it may be helpful to print out the
Schedules A and B after you have prepared them. Then, beginning with the most common
categories of exemptions, look for those items on the A and B schedules and
exempt them one by one. For example, you
might start with the 6th item down, the Homestead exemption. Go
to the Schedule A and click on the property.
Then click on the exemption tab and enter the Homestead exemption. The
computer calculates the equity in the property and applies the maximum amount
available. Then do the same with the
The most common exemptions
basic household items including washer, dryer, fridge, freezer, stove,
microwave, clothing, beds and bedding.
#24, household items including
#25, tables and chairs.
#26, books, animals, and musical
items of sentimental value. This
category includes things like wedding rings, jewelry for women, and firearms
for men. Cars cannot be exempted as
items of sentimental value.
tools of the trade. This category does
not include inventory, only tools used in a business.
#29, vehicle. The debtor can exempt up to
$2500.00 of equity in one motor vehicle.
Try to exempt the most
important (and/or costly) items in each category first until the available
exemption runs out. Then go to the next
exemption. The Trustee is unlikely to dispose of small inconsequential items
even if they are not exempt. Later as
you become more familiar with the exemptions you can prepare them at the same
time as you enter the property on the Schedule B.
3.4 The Trustee’s Interest
The Trustee’s interest in
Schedules A, B, and C; is to determine if the Debtor has any assets that are
worth liquidating in order to return funds to unsecured creditors. If total non-secured non-exempt assets are
less than $1,000.00 the Trustee generally has no interest in liquidating the
property, since the costs of administration would exceed the recovery.
4.1 In General
As indicated in a previous lesson
debts fall into 4 different general categories.
However, on the bankruptcy pleadings there are 5 different places where
debts can be listed. In addition, the
location where a debt is listed is not always what you would infer from the
name of the schedule. For example, not
all priority debts are listed on “Schedule E” the priority debt page. Debts are entered on the bankruptcy forms in
the way that is most convenient to the Court and the case Trustee. In other words, according to the priority of
distribution rules (see, 11 USC § 507).
If you will look at the chart
in the Appendix of your material called General Types of Debt you will see a
listing of the four general types of debt with sub-categories. You will also notice to the side of each heading,
sub-heading, and example; the bankruptcy schedule where the debt should be
look at the specific schedules and types of debts.
General Types of Debt
Guarantied Student Loans
Driving Accident Debt
Fines and Penalties
and Child Support
Recent Consumer Debt over $1,000
Cars (Title Loans Only)
and Office Buildings
Money Security Interest (PMSI)
Cars and Other Vehicles
and Tape Clubs
Furniture or Electronics
Leased Business Equipment.
Credit Card Debt
All Types of Debt not Listed Above
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.
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.
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.
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
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
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
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
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
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
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
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
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
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
4.5 Schedule H
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.
5.1 Schedule I
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.
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.
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.
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.
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.]
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
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
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:
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.
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.
that the IRS expense guidelines are now used to determine what is reasonable.]
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.]
The Statement of Financial Affairs
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.
number 2 is for income from sources other than employment. Things like social
security, child support, alimony, disability, unemployment benefits, those kinds of things.
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.
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.
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.
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.
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.
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.
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
[Note: it is also a good idea to itemize expenses like the
filing fee or credit briefing class, because they are not fees.]
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.
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.
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.
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.
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.
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.
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.
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.
23 is a follow-up to question 22. They want to know what the business has paid
to any body during the last year.
The Statement of Intent
7.1 In General
generally have three options in connection with secured debt. They are
surrender, reaffirmation, and redemption.
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.
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.
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.
Compensation Statement of Attorney
part of the Bankruptcy Pleadings the attorney must disclose the amount of compensation
he has agreed to receive.
1An exception occurs when there is a pre-paid
lease. The pre-paid payments represent
value that should be indicated with an explanation of the length of the lease.