Declaring Bankruptcy the Right Way

In an episode of television’s “The Office,” the main character Michael Scott makes a misguided attempt to resolve his debt problems by publicly stating, “I. . . declare. . . bankruptcy!” Video clips of this funny episode can be found on YouTube.

Back in the real world, declaring bankruptcy is not nearly as public, or as simple, as shouting out “I declare bankruptcy!” The bankruptcy process begins with an accounting of your income, expenses, assets, and debts. The debtor is required to use approved forms for this financial accounting. A copy of these forms can be found on the U.S. Courts website, and a general description of each form that must be filed in all consumer debtor Chapter 7 bankruptcy and Chapter 13 bankruptcy cases is provided below.

The Voluntary Petition is three pages long and is the formal declaration of bankruptcy. Filing the Voluntary Petition begins the bankruptcy process and imposes the automatic stay which will generally stop action by creditors to collect debts.

Schedule A is a list of real property.

Schedule B is a list of personal property.

Schedule C is a list of property the debtor claims as exempt.

Schedule D is a list of creditors holding secured claims.

Schedule E is a list of creditors holding unsecured priority claims.

Schedule F is a list of creditors holding unsecured nonpriority claims.

Schedule G is a list of the debtor’s executory contracts and unexpired leases.

Schedule H is a list of codebtors in the bankruptcy.

Schedule I lists the debtor’s monthly income.

Schedule J lists the debtor’s monthly expenses.

The debtor must sign a Declaration that the above schedules are accurate to the best of his or her knowledge, information, and belief.

The debtor must file a Statement of Financial Affairs. This form provides a summary of the debtor's financial history, transactions, and operations over certain time periods before the case is filed. There are 18 separate items on this form:

1. Income from Employment or Operation of Business
2. Income Other than from Employment or Operation of Business
3. Payments to Creditors
4. Suits, Administrative Proceedings, Executions, Garnishments, and Attachments
5. Repossessions, Foreclosures, and Returns
6. Assignments and Receiverships
7. Gifts
8. Losses
9. Payments Related to Debt Counseling or Bankruptcy
10. Other Transfers
11. Closed Financial Accounts
12. Safe Deposit Boxes
13. Setoffs
14. Property Held for Another Person
15. Prior Address of Debtor
16. Spouses and Former Spouses
17. Environmental Information
18. Nature, Location, and Name of Business

Finally, the debtor must file either a Statement of Current Monthly Income and Means Test Calculation in a Chapter 7 Bankruptcy case, or a Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income in a Chapter 13 bankruptcy case.

The success of your bankruptcy largely depends on the accuracy of these forms and the skill that your bankruptcy attorney applies in crafting these financial reports. Don’t leave your financial future to chance! Seek out an experienced bankruptcy attorney to complete these forms and advise you on the best course of action to resolve your financial problems and protect your rights!

Statement of Intention – Bankruptcy Code as it relates to Chapter 7 Bankruptcy

The Bankruptcy Code directs the Chapter 7 debtor to file a statement of intention with the bankruptcy court within 30 days after the petition filing, or on or before the 341 Meeting of Creditors, whichever is earlier. A statement of intention advises the court, the bankruptcy trustee, and your creditors of how the debtor intends to treat secured collateral, like a car or home, in the bankruptcy.

The Bankruptcy Code also requires that the Chapter 7 debtor perform on that intention within 45 days after filing the statement. The Bankruptcy Code allows the debtor to choose one of the following: (1) surrender the collateral back to the creditor and discharge any personal liability; (2) reaffirm the debt and retain the collateral in exchange for continued personal liability on the original debt; or (3) redeem the collateral by paying the current fair market value in a lump sum.

Prior to the overhaul of the Bankruptcy Code in 2005, a Chapter 7 statement of intention had little relevance. Now the statement of intention can mean the difference between keeping and losing an automobile or other secured property.

Failure to timely file or perform on a statement of intention causes the automatic stay to be lifted and the property is no longer a part of the bankruptcy case. In some cases, a purchase agreement may contain an ipso facto clause which creates a default on the loan by filing bankruptcy. The Bankruptcy Code expressly nullifies ipso facto clauses, but only for property of the bankruptcy estate. Most courts find that ipso facto clauses are enforceable under state law when property is no longer a part of the bankruptcy estate.

Let me restate this situation in plain English: if you file bankruptcy and do not file or timely perform on a statement of intention, the property is no longer protected by the bankruptcy and can be repossessed by the creditor, even though you are current on the loan. This situation recently was discussed in a Ninth Circuit Court of Appeals case, Dumont v. Ford Motor Credit Company.

If you have an auto loan or other secured item you want to keep, discuss your options with an experienced bankruptcy attorney. Your attorney can help you reach the right decision for you and your family.