Your bankruptcy attorney will often refer to the “bankruptcy petition” or simply the “petition.” It’s actually shorthand for the “Voluntary Petition, Statements and Schedules” as well as Certificates and Declarations and Summaries and Calculations and Lists, which constitute the initial package of forms filed to instate your bankruptcy case. It’s veritable storm of schedules (and statements and certificates and…) and today we’ll highlight a sampling of its sections.
The first part of the petition is the actual “Voluntary Petition,” an eight-page cover page, where you’ll identify yourself and your spouse if he’s filing with you, as well as any aliases and stage names. For example, when Curtis James Jackson, III filed a voluntary petition, he was supposed to include “50 Cent” as an alias, but out of professional curiosity I checked, and he didn’t actually include his, ahem two bits. I guess he ran out of change?
The cover page will also include past bankruptcy and business information, and have you check boxes for estimated total assets and liabilities. The boxes for total debts, for example range from an initial category of “$0 – $50,000” and conclude with the option “More than $50 billion.” I mean, it’s just dollars, not Euros, but still….
See, the voluntary petition is the same form used by regular consumers and mega corporations.
The Voluntary Petition is followed by a set of informational and statistical summaries of the appended schedules, akin to an advertisement for the further detail coming soon. Which doesn’t make sense to me. Like if you’re browsing Netflix, you might check the preview before you commit to the movie, give it a pass if unenticed. But the bankruptcy petition, schedules and statements have to be reviewed in full by the case trustee. She can’t just watch the trailer and decide, nah, it’s not for me.
The bankruptcy Schedules proper commence with “Schedule A/B.” That’s its name, written like that. We used to have Schedule A and Schedule B. But now it’s like the virtuoso guitarist, born Saul Hudson: the Schedules got Slashed. Schedule “A/B” is a redundant 2015 update to the petition; it merges two previously separate forms: Schedule A had listed real property (real estate or land) and Schedule B listed personal property (any interest that’s not “real”). Presently, it’s Schedule A/B split into Part 1 (Real Property) and Part 2 (Personal Property).
Anyhoodle, if you have a house, investment property, plot of desert where they were supposed to erect that airport, but didn’t and now you lease it to the mob? It goes on Schedule A/B Part 1. Not literally, because you only have 93½ square inches. But it’s imperative that we accurately describe on paper the asset, the nature and share of your interest and its value. Even if you have a plot of land in the Philippines or a 1/4 share of a condo in Dubrovnik, it goes to Schedule A/B Part 1.
A/B Part 2 (Artist formerly known as B) provides for an exhaustive listing of personal property. Personal property includes contingent, unliquidated, intangible and partial interests. The itemization mustn’t undervalue nor overvalue assets, lest it mislead, confuse or cause avoidable delay. There are nearly 50 category fields to populate and it’s incumbent upon us to incorporate detail where needed and be succinct when possible. If you don’t schedule property, you can lose it, even if you’d have otherwise been entitled to exempt it.
Which bring us to the key Schedule C, in which we apply “exemptions” corresponding to the assets scheduled at A/B . In chapter 7 bankruptcy, “exemptions” are statutes that when properly applied protect property (up to a defined value) from turnover (that would yield proceeds for repayment of debt). The bankruptcy attorney must elect the correct exemption among many and often ambiguous laws. After ascertaining an exact exemption limit, subtracting the sum of encumbrances (liens) and deducting hypothetical sale-costs, your bankruptcy attorney can assess whether assets are immune to liquidation. If chapter 7 bankruptcy were to lead to undue loss, then chapter 13 bankruptcy may be a viable, alternative route.
In chapter 13 bankruptcy, Schedule C’s exemptions affect the chapter 13 plan payment. In chapter 13 bankruptcy, payments to unsecured creditors mustn’t be less than the nonexempt value in property (that would be remitted to creditors).
And you thought C was for “Cookie.” Let’s proceed to D.
Bankruptcy Schedule D describes one’s secured debts such as mortgages, auto loans, judgment and tax liens. It includes the correct address for notice to the creditor, incurrence date (when you borrowed or acquired the debt), description of the collateral (which would correspond to Schedule A/B) and more.
E/F Part 1 (formerly E), lists “priority debts,” including domestic support and recent income taxes that cannot be discharged. Priorities are enumerated in the bankruptcy code at section 507 and set the order of payment among certain creditors in chapter 13 or the rare chapter 7 case in which distribution is made from nonexempt assets.
E/F Part 2 (used to be the F Schedule) includes all non-priority unsecured debts, including both dischargeable liabilities (like credit cards, medical bills and personal loans) and non-dischargeable debts (like student loans).
We continue through the alphabet of bankruptcy schedules with Schedule G. Apparently, as with the Cat in the Hat’s Little Cats summoned to undo the movable pink cat ring, it takes many letters to erase stubborn spots of debt.
Bankruptcy Schedule G lists executory contracts and leases (like your realtor’s Lincoln, Lexus or Lotus). I don’t know why realtors always have to drive new cars. Do home buyers compromise ’cause the ride there was nice? “I didn’t like that last house, Ed, you know, it has the mold? But you had us at that new car smell. Let’s make em an offer!”
Bankruptcy Schedule H has is where you list co-debtors, also known as co-signers or co-obligors. Bankruptcy absolves you of debt, but it won’t affect a cosigner’s liability, which will linger.
Bankruptcy Schedule I is for Income (wait, what? A fitting initial?). The projected monthly figures you input must encompass a broad number of sources, including periodic payments and contributions. For example, a tax refund (prorated to 1/12 its sum) might be scheduled here.
Bankruptcy Schedule J lists your Jexpenses, I mean Expenses. Here we project both regular and periodic expenditures as a monthly number. The balance between Schedules I and J materially affects chapter 7 bankruptcy eligibility and corresponds to the sum of your chapter 13 bankruptcy payments.
J is the last lettered schedule, but a myriad of statements and declarations follow.
There’s the Declaration Concerning Debtor’s Schedules. Herein is admonition that lying and concealing may translate to 5-years imprisonment and/or a $500,000 fine (and no, that wouldn’t be dischargeable in a subsequent bankruptcy proceeding) and/or tarring and feathering, but not tarring and/or feathering, because that wouldn’t make sense.
Next is the salient Statement Of Financial Affairs. In misguided bankruptcy stab at wit via brevity, the Statement of Financial Affairs is acronymized to “SOFA.” I reckon selecting a symbol of sloth (a sofa or couch is the boob-tube-watching potato’s preferred place to park) has contributed to the form’s often cursory completion by bankruptcy practitioners. The SOFA contains some seemingly innocent questions, but they’re of strict importance and designed to identify opportunities for a trustee to object to the case or lay claim to assets. I take care to ensure the client fully understands the implications so that the statement–which is signed under penalty of perjury–can be completed in a fully informed, complete and accurate manner.
A Statement of Intention follows in which you state whether you intend to keep or return secured or leased real or personal property. You might indicate, for example to your car lender that you will surrender a vehicle you no longer wish to retain (and the bankruptcy would eliminate further liability). Alternatively, you might indicate intention to reaffirm (reinstate) the loan, or voluntarily maintain payment (without reaffirming). These statements of intention, however are not binding.
Then comes the Compensation Statement of your bankruptcy attorney. Here, the bankruptcy lawyer discloses how much you paid him. The disclosure subjects the payment to review by the United States Trustee to ensure the fees you paid are not excessive. (This is also why bankruptcy attorneys don’t lease Lexuses, Lincolns or Lotuses.)
The petition also includes a Rights and Responsibilities form. It essentially supplements your bankruptcy attorney retainer. It sets forth the scope of work your bankruptcy lawyer owes you without added cost and also highlights your obligations of honest disclosure and reporting.
The petition also incorporates a so-called Creditor Address Matrix. Although creditor addresses are already included at Schedules D and E/F, the addresses are repeated in different consolidated format here to facilitate court mailings. Back in 1999, the drafting committee, charged with naming the form, included some avid film buffs. They entertained the whimsical notion of giving a nod to a theatrical feature in then-current release. Initial votes favored the “Creditor Address Jar-Jar,” in homage to that summer’s eagerly anticipated “Star Wars Episode I: the Phantom Menace.” In the end they opted to honor Keanu Reeves’ contemporaneous cyberpunk classic.
Don’t try this at home. The surfeit of bankruptcy forms induces no small sum of
Forms numbered 122A-1 and A-2 follow. These include a calculation of “current monthly income” (which is actually a calculation of past months’ income…) and the means test, a convoluted series of calculations to determine one’s debt repayment ability; its completion is required for consumer debtors if “current monthly income” exceeds the state median. An alternative form is used in chapter 13 bankruptcies to set the monthly payment threshold to unsecured creditors.
Finally, a form approving use of electronic signatures is added to incorporate (for persons with primarily consumer debt) declaration that they’ve discussed with counsel options of filing either chapter 7 or chapter 13 bankruptcy.
RELATED– CONSUMER DEBT vs. NON-CONSUMER DEBT
Before we go, brief comparison between the bankruptcy petition and the tax return, a document you’re likely far more familiar with. There are some superficial similarities. Both records include a type of cover page followed by supporting schedules and statements. They’re both signed under penalty of perjury and submitted to the federal government. They’re both similarly prepared on the honor basis: for practical purposes, not every declared fact is documented. However, there are marked differences. The standard evidentiary requirements that accompany a bankruptcy petition are far more considerable than what a tax return demands (absent case of audit). The bankruptcy petition is of greater overall scope. The disparate natures of the documents is also apparent where they overlap, in description of income.
The tax return constitutes a determination of taxable income, whereas the bankruptcy petition is designed to demonstrate a wholly different purpose: the lack of repayment ability as a basis for debt relief. In order to convey its intention, the bankruptcy petition must report income over multiple periods of time (as opposed to a single concluded calendar year in the tax return). The Statement of Financial Affairs lists total income over the current year to-date and the prior two calendar years. The Statement of Current Monthly Income reports income from all sources over the six months ending the month before the filing. And Schedule I reflects current or projected income. As the bankruptcy petition is prepared and finalized, it must be continuously updated to reflect incoming data up to the moment of filing. That element of currency compels the bankruptcy attorney to track evolving circumstances that might materially affect the client’s eligibility and case outcome. It’s just part of due diligence, a lawyer’s call of duty.
Photo credit: K. Mitch Hodge