Bankruptcy involves a lot of paperwork. To file a case, a large pile of forms must be completed. Most attorneys begin by giving their clients a worksheet to fill out. Then the official bankruptcy forms are completed, proofread, corrected, and eventually filed. Some of the forms seem fairly easy to understand on their face. In fact, some debtors fill them out themselves, or get help from a Bankruptcy Petition Preparer, which is essentially a typing service, and file their case without an attorney.
The Forms Matter
What is included on the bankruptcy schedules (or what is omitted), can have serious consequences later on. A debtor who leaves things out, or makes mistakes on the forms can lose important rights, or find him or herself on the wrong side of a federal criminal indictment.
It is crucial to know that lawyers, including those that wrote the bankruptcy code, as well as those that designed the forms have only a passing acquaintance with the English language. Lawyers are in love with their own jargon, and often include special definitions of words, which may not correspond with the way the rest of the English-speaking world understands things.
How Income is Disclosed in Bankruptcy
A good example is income. Schedule I asks for income, and Form B22 begins by asking for something called “current monthly income.” Suppose that the debtor’s income has gone down – perhaps he is laid off, or is working fewer hours. Students of the English language would probably assume that “current” monthly income is what the debtor is currently earning, and use that on Form B-22. For Schedule I they might decide to use an average – perhaps the average of the last 6 months. But that would be the exact opposite of what is required on these forms. Schedule I is supposed to reflect current income, and income for the immediate future. Averaging is often appropriate, but if the change is expected to be permanent, the new amount should be used. Form B-22 is based on language in the Bankruptcy Code – the “means test”, which requires that a 6 month average be used.
How Property is Listed in Bankruptcy
One of the most important part of the schedules is a list of all of the property owned by the debtor. Most people would understand that they have to list their house, car, and furniture. But many might not think to include a claim they have against a former employer for not paying overtime. This also needs to be listed; if it’s not, the debtor may lose the right to collect if the case is successful after the bankruptcy. In fact, the Debtor could lose any property that is not listed in the Bankruptcy Schedules.
A few of the questions are “red flags” for the trustee who will be reviewing this. The Statement of Financial Affairs asks, innocently enough, about transfers of property made within the past two years. Easy enough to answer, but if a significant amount is involved, it may be possible for a trustee to undo the transfer.
The forms are filled with traps for the unwary. That is one of the reasons why most persons seek out the services of a consumer bankruptcy attorney.