Filing Bankruptcy: Petition and Required Forms

Bankruptcy Guide

Filing for Bankruptcy: What's Involved?

Once you have chosen the best type of bankruptcy for your situation and planned all of your exemptions and legal strategy, you will need to complete the required bankruptcy forms.

At first glance the paperwork can seem daunting, but if you've educated yourself on the process, proceed carefully and take your time, you should be able to get through all the petition and schedule forms without too much trouble.

If you realize that it's more complicated than you were expecting, talk to a bankruptcy lawyer and find out if you're missing anything or doing something wrong.

Getting Started: The Bankruptcy Petition

The bankruptcy petition itself is fairly short and simple. It's comprised of three pages of basic information such as names of debtors filing, addresses, type of bankruptcy, type of debtor (business or personal) and the district which will be handling the case.

Under the type of debtor, you must select either individual or business debtor. You should only select business for incorporated business structures. Sole proprietors and other small business owners that have their personal assets commingled with business assets and debt should still choose individual. If your debt is a combination of both, then choose whichever is greatest. If it's near 50 percent of each, it's best to select business debtor. The same goes for the nature of debts.

There are four exhibits, from A through D, that are included as part of the bankruptcy petition. The only one you need to complete is exhibit D, which states that you have completed the required pre-bankruptcy credit counseling course.

Schedule A

Schedule A is where you must list any real estate assets that you own. This includes your primary residence, rental properties, vacation homes and other real estate holdings. If you do not own any real estate, simply fill out the top portion of this form and leave the rest blank.

For each line item you are asked to include the nature of the debtors' interest in the property. This is just a way of telling the court the type of ownership you have in the assets. In almost every case this will be "Fee Simple," which means you hold title to the property and a bank has an interest in the form of a lien and a loan used to purchase it.

Other less common types of interests include the following:
I. Lien Holder: If you have a lien against someone else's property, such as a mechanic's lien, then you must include that on schedule A.
II. Easement Holder: If you have established an easement agreement on another person's property, this must also be included.

Under the Current Value section you must include an estimated property value. You must also include the amount of the loan against the house under the "Amount of Secured Claim" section. If this is greater than the value of the property then you are "upside-down."

Schedule B

Schedule B should look familiar if you followed the exemption planning strategy in this guide. This is where all of your personal property, exempt or not, will be listed. This form is fairly straightforward, and you must be thorough and include all of your personal property and its accurate value.

Schedule C

Schedule C is where you will itemize all the property and assets that you are claiming as exempt from the bankruptcy estate. You must include two dollar amounts for each line item: the value of the exemption and value of the property. Remember to use the value of your equity under the claimed exemption section. For example, if you have a car worth $20,000 with a $19,000 loan against it, you would put $1,000 as the value of the exempt property.

In the next column, you put the value of the property itself. In the above example, you would put $20,000 in this section. You must also provide the law (the statute code) for each exemption you use. Call your court to find out where you can get this information, and avoid using Internet sources other than the US Court website, because these codes change often.

Schedule D

On schedule D you must list all the creditors with secured claims involved in your case. This will likely be the banks holding your car and real estate loans.

Under the section regarding the date debt was incurred and nature of the lien, there are two common types of liens that you will likely use. For a home mortgage or loan against other real estate, use the term "Mortgage." For an auto loan or other similar secured loan, use the term "Purchase Money Security" to describe the nature of the lien.

Under the amount of claim, put the total value of the lien or loan. For example, if you owe $200,000 on your home, that is the number you would use.

The "Unsecured" portion refers to any cases where the value of the property is less than the total amount owed against it. For example, if the home securing the $200,000 loan is only worth $180,000, then you would put down $20,000 as the unsecured portion. This is where you may be able to strip some portion of the secured loan and it might be discharged.

Other types of liens that you may need to include on schedule D are any mechanic's liens, tax liens or other "secured interests" placed against property that you own.

Schedule E

On schedule E you will be including all the unsecured priority debts that you owe. Most commonly this will be comprised of unpaid family support obligations like child support and spousal maintenance payments, unpaid taxes, and unpaid salaries or wages (for business owners).

If you have unpaid IRS debt and it has placed a lien against your property, you should have already listed it on schedule D. You should not list it again here.

Under amount entitled to priority, you list only as much debt as is owed up to the cap. The cap is listed on the first few pages of Schedule D. Not all priority claims are capped, so check before you complete this section. If there is a cap, you would only include an amount up to, but never exceeding the cap. The remainder goes under amounts NOT entitled to priority.

Schedule F

On schedule F you must outline all the non-priority unsecured debts that you owe. These are the debts that will be discharged in a chapter 7 case, and the last debts to be paid (in some part as determined by your plan), in your chapter 13 plan. This is made up primarily of credit card debt, personal loans, payday loans, medical debt, deficiency claims from a foreclosure or car repossession, and any other dischargeable unsecured debt.

Schedule G

If you're leasing any property, or have any contractual obligations regarding property, schedule G is where you will include those. In a bankruptcy case, the trustee will assume your responsibilities for these leases, and you, the trustee and your attorney will determine how to handle them to your best interest.

This is a good opportunity to evaluate the financial wisdom of your leases and determine if it's best to get out of them. For example, if you signed a long-term lease on an expensive car, now is the time to get out of it without any penalties.

Schedule H

If you have any co-debtors sharing liability on debts, you must include their information on schedule H. These debtors may have to wholly assume liability for repayment of debt to which they are a party. There are ways to protect co-debtors, but it is complicated and outside the scope of this introductory guide. You will want to inform your attorney of this issue to find out what legal strategies you can employ to protect them.

Schedule I

Schedule I should include all of your sources of income, including wages and salaries, income from rental properties or other investment income and also any one time "irregular payments" you are expecting in the near future such as an inheritance.

If you are expecting an inheritance in the near future, make sure your bankruptcy attorney is aware of it. There are perfectly legal ways to protect this from bankruptcy, including writing yourself out of the will or creating a spendthrift trust granting you the money at a later date.

Schedule J

All of your monthly expenditures will be listed on schedule J. This is one way your monthly disposable income will be determined to establish a payment amount as part of a chapter 13 bankruptcy case. The form is straightforward to complete, and includes line items for all types of monthly expenses, from bills to normal living and entertainment expenses. Be sure to be as accurate as possible, and avoid any irregularly large monthly expenditure that you cannot effectively explain.

Statement of Financial Affairs

Another important part of bankruptcy paperwork is the statement of financial affairs. Here you will tell the court all of your recent financial transactions so that any preferential or potentially fraudulent payments can be identified. You will want to include a description and amount of all significant payments or purchases made within the previous 90 days of your bankruptcy filing.

Debtor's Statement of Intentions

On the statement of intentions, you will tell the court how you plan on handling certain options regarding the secured property in your case. This includes your home (whether you intend to forfeit any non-exempt equity or keep the home and continue with mortgage obligations) and your car.

You have a few options if you have a car with significant equity beyond the allowable exemption amount. You can either let the car go and receive a lump sum of cash equal to the allowed exemption amount, or you can redeem or reaffirm the property.

Mailing Matrix

The mailing matrix is critical because this is the contact information the court will use to notify all of your creditors of your bankruptcy filing. This is how the court informs creditors that a stay has been implemented and they are legally barred from taking any further action against you to attempt to collect on debts.

Payment Plan in a Chapter 13 Case

Creating a payment plan is a complex endeavor, but it is created in several steps.

You must calculate your net disposable monthly income to determine the amount of money available for the monthly payment.
Include any mortgage payments, as well as payments necessary to cure past due mortgage arrears.
List all of your unsecured priority debts and ensure the payment can cover them.
Include all the payments to non-priority creditors.
Include the calculation for the "Best Interests of Creditors Test," which shows that unsecured non-priority creditors will get at least as much through your payment plan as they would if you had filed a chapter 7 bankruptcy. Sometimes this means they get nothing, other times they may get some small portion of the outstanding debt. It all depends on the value of your non-exempt equity.

To Sum Up

The bankruptcy filing process can be intimidating to even the most prepared filers. While it can be done by a layperson, it really is best to have an attorney take care of this process. There are serious legal and financial implications at every step, and a mistake or poor decision can end up costing you lost property or debt repayment that should be discharged by law.

If your assets are small and you're filing a very simple chapter 7 case without any real estate or cars involved, then you can get away without hiring an attorney. However, if you have property you would like to protect, or you are thinking about a chapter 13, then you definitely want to talk to a bankruptcy attorney before taking any steps towards filing.

Next Steps

9. Bankruptcy Hearing: What to Expect
10. Your Credit After Bankruptcy
11. Bankruptcy Questions and Answers