What Does It Mean to File Bankruptcy?

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To file bankruptcy, the Debtor’s attorney will prepare documents which in most cases consist of several dozen pages.

A Petition contains general information such as your name and address, the chapter of the bankruptcy code under which the Petition is filed, statistical and administrative information, and a place for the Debtor’s signature indicating assent to file the Petition.

Along with the Petition the Debtor files a Statement of Affairs. As the name of the document suggests, you report financial information such as the income earned year to date.  You list income from various sources, such as business income, social security, child support etc. You are required to list payments made to creditors within various periods of time. The Statement of Affairs poses miscellaneous questions about your financial affairs such as whether you have had any losses for fire, theft or gambling; whether you have a safe deposit box; whether you have made any significant gifts recently or any charitable contributions; or whether you have been involved in any lawsuits; and you are asked to list property you may have transferred over certain periods of time. This is not a complete list.

The Debtor also files a set of Schedules with information about your property (assets), debts (liabilities), income and expenses. These Schedules deal with the following: a. Real Estate; b. Personal Property; c. What property may be “exempt” under the Bankruptcy Code [See Exemptions, below]; d. Secured Creditors; e. Creditors entitled to “Priority” status under the Bankruptcy Code — tax debts would be one example; f. Unsecured Creditors — typically most creditors will fall into this category; g. Executory Contracts & Leases. An executory contract is a contract which still has terms remaining to be performed (aside from the payment of money); h. Co-debtors; i. Income of debtor (and debtor’s spouse); and j. Current Monthly Expenditures of the debtor. There is a Summary of Schedules and a declaration by the debtor attests the information in the Schedules is correct.

A Statement of Current Monthly Income (Form B22A or B22C) is sometimes referred to as the ‘Means Test’. Paystubs and other documents are used to calculate your current monthly income. The test is somewhat artificial since it is based on only the six months prior to the month in which the bankruptcy is filed. Thus, the debtor may have some power to select the time frame by hurrying or delaying filing. Calculation of income is then used to check whether or not your income is above or below the median income in your state for a family of your size. If your income is above the statewide median you will have to complete calculations (the means test) related to your income and various obligations. In a Chapter 7 case, if you pass the means test you are very likely eligible to file a Chapter 7. In a Chapter 13 case, the test is used to fix the duration of the Plan (and indirectly the amount to be paid). [See What Will My Chapter 13 Payment Be?]

Miscellaneous other documents will also be filed such as a statement about the compensation paid to your lawyer and a matrix with the names and addresses of all creditors. There will also be a declaration that the debtor has completed the counseling requirement. The debtor must complete the required credit counseling prior to filing. In a Chapter 7 case the debtor will file a Statement of Intention setting out the debtor’s plans to retain, redeem or surrender secured property and state whether any lease or executory contract will be assumed or rejected.

The debtor signs a Signature Declaration essentially signing on to all the documents. The attorney will electronically file the documents. In most cases the attorney also files the debtor’s pay advices (pay stubs or pay records) and pays the filing fee automatically as part of the filing.

As part of filing, the judge responsible for the case will be selected and the Trustee and United States Trustee will be notified.  Shortly after filing the Bankruptcy Court will schedule the 341 Meeting (First Meeting of Creditors) and mail out notices of the filing and meeting to you and the creditors.

As you can see, filing Bankruptcy is not simple. If a genuine ‘emergency’ requires an immediate filing, a Partial Filing can be made. Just the Petition, Signature Declaration, Notice of Responsibilities and Matrix of creditors who can be quickly identified are filed. Partial filings are discouraged by the Bankruptcy Court and bankruptcy attorneys. After a partial filing, the remaining documents must be filed within a short period of time. This deadline can be stressful for both the debtor and attorney. The rapid pace of filing makes it more likely mistakes may be made by both debtor and the debtor’s attorney.

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