Bankruptcy Forms, Filing and Other Matters - Module 5 of 5

Module 5: Bankruptcy Forms, Filing and Other Matters

Filling out forms is the major part of filing for bankruptcy. For the most part, bankruptcy lawyers and their staffs actually fill out the debtor’s forms after the debtor supplies the necessary information. As you can probably tell from the previous modules, filing a bankruptcy of any kind requires a considerable amount of information. Even a simple Chapter 7 can run up to 50 pages of forms, and more complex corporate bankruptcies can generate truckloads of paperwork.       

All of the forms necessary to file a bankruptcy, other than the plan for a Chapter 11 or 13, are called the Official Bankruptcy Forms.[1] They are created by bankruptcy courts within parameters set by Congress.

The forms can be downloaded from several websites. In addition, there are a number of third-party software developers who have created their own sets of forms, particularly where it involves online filing—although, again, these third-party forms must conform to the official guidelines.

In this last module, we will discuss some of the most important forms and how they are filed, as well as cover some important points that have not been covered in the previous modules.

Filling out the Official Bankruptcy Forms

            A bankruptcy court needs many details of a petitioner’s financial life. It can be overwhelming for debtors trying to get their hands on all of the information needed to fill out the bankruptcy petition, statement of financial affairs and schedules. These forms take up many pages and the required information is highly detailed. The necessary documentation is often scattered in multiple places throughout the debtor’s home or various corporate locations, and some of the information may not even be available. In addition, a local bankruptcy court may have its own set of forms.

All bankruptcies include the petition,[2] a statement of financial affairs[3], a creditor matrix for mailing information to creditors,[4] and “schedules.” A bankruptcy schedule is a list of answers to questions on various topics. For instance, Schedules A and B list the debtor’s unsecured property,[5] Schedule D[6] lists secured property and Schedules E and F list unsecured creditors.

To fill out the forms properly, the bankruptcy attorney will often give the appropriate set of forms to the debtor and have the debtor fill out the forms to the extent possible. Then, the debtor and attorney will work together to complete the missing or incomplete information. In a business bankruptcy, the owner or accounting department must work closely with the attorney to make sure all the forms are filled out properly. Failure to do so may result in a dismissal or delay in the case.

In all cases, the debtor must provide, at a minimum:

-       a list of creditors and the amount and nature of their claims;

-       the source, amount, and frequency of the debtor's income;

-       a list of the debtor's property; and

-       a detailed list of the debtor's monthly living expenses, such as food, clothing, shelter, utilities, taxes, transportation, medicine, etc.

Filing the Petition

The bankruptcy petition and all attendant schedules and other required forms are filed at the office of the appropriate bankruptcy clerk for the debtor’s district. The filing can be done online using the Federal Court Electronic Filing System[7] or may be physically filed at the courthouse. Bankruptcy court allows the filing of a pro se petition (which means filing without a lawyer), but the government strongly discourages this[8].

Only a person that resides or has a domicile, a place of business, or property in the United States may be a debtor under bankruptcy law.[9] In most cases, one must file in the federal court district in which one lives. This means where the debtor has a permanent home or has been a resident in previous 180 days.[10] Note that, while a debtor can file in a district by living there for as little as 90 days, to use a state’s property exemptions, the debtor must have continuously resided in the filing state for the prior two years.[11] Otherwise, the debtor must use exemptions from the previous state of residence, as long as he was there for at least two years. Failing that, the debtor can use federal exemptions.

A business can file in the district where it is incorporated, where it has its principal set of assets or where its headquarters are located.

Debtors can actually file in any district as long as there is no objection, but the trustee may object if it looks like the debtor is engaging in “forum shopping.”

Emergency Filing

Most of the time, all of the forms are filed at the same time. However, debtors looking at an eviction notice or a wage garnishment or who have their electricity turned off may not have the time to put all of the forms together for immediate filing. In these cases, the bankruptcy rules allow Chapter 7 and 13 debtors a process called “emergency filing” or “skeleton filing,” which allows the debtor to achieve the automatic stay by filing just a few forms[12] up front.

In an emergency filing, the debtor must file at least the voluntary petition, creditor matrix with verification, statement of social security number and certificate of credit counseling and attendant paperwork.[13] Chapter 13 filings may need to attach a partial plan. After that, the debtor has 14 days to file the rest of the required forms and schedules.

The Filing Fee and Other Fees

Each chapter has its own filing fee, which is paid to the court at the time that the petition is filed. The filing fees are uniform across the entire court system, and are (as of late 2018):[14]

Chapter 7: $335

Chapter 11: $1717

Chapter 13: $310

If a case is converted from one chapter to another, the fees will be adjusted accordingly. If the petitioner cannot afford the filing fee, it can be paid in installments[15] or waived upon submission of a “poverty affidavit.”[16]

In addition, all bankruptcy petitioners must take credit counseling courses, which can run up to $30. Debtor education courses that are required in some cases run about $35. These courses must be offered to everyone, regardless of ability to pay.

The main cost to file for bankruptcy, of course, is usually the legal fees. Most lawyers do simple individual bankruptcies for a set fee, but each individual lawyer is in charge of setting that fee. Large business bankruptcy attorney’s fees can be enormously expensive.

After the Petition is Filed

After the petition is filed, the case will go through the processes that we have described in the previous modules. Except for most Chapter 11 cases, the trustee will run the case, and so it is important to briefly look at why the forms must be filled out before they are filed.

Within 15 days after filing the petition for a Chapter 7 or 13, the trustee will send a notice of the case to the debtor and the creditors, which will include notice of the initial creditors’ meeting. At that meeting, the trustee will go over the forms filed by the petitioner. The petitioner is placed under oath to discuss his financial affairs, property and general understanding of the bankruptcy process[17]. The trustee will report to the court after this meeting,[18] and the case will proceed unless there is a reason for it not to go forward[19].

Conversion

Bankruptcy cases must initially be filed under one Chapter of the Bankruptcy Code. However, there may be circumstances that arise during a case that make it more appropriate to proceed under a different Chapter. For instance, a debtor may have the intention of following through on a Chapter 13 plan but finds that it cannot be done after a few months of austerity. The debtor can then convert the bankruptcy into a Chapter 7 liquidation. This conversion may be initiated by the debtor, a creditor, the trustee or the court. Conversions may happen voluntarily or involuntarily.

The debtor always maintains the right to convert from one chapter to another. However, the debtor’s conversion may be denied by the court if it is made in bad faith or is in violation of the Bankruptcy Code.

To convert from one chapter to another, the debtor must meet the qualifications of the new chapter. For instance, a debtor may not be able to convert from a Chapter 7 to a Chapter 13 if the debtor does not have sufficient income to meet the needs of the plan. Moreover, debtors will not be allowed to keep converting cases from one chapter to another. For instance, a condition of a voluntary conversion is that the case has not previously been converted to a Chapter 7 from another chapter.[20]  

If circumstances dictate, the trustee or a creditor can make a motion to convert the bankruptcy, usually from a plan bankruptcy to a Chapter 7 liquidation. This typically happens in Chapter 11 or 13 cases when the debtor cannot meet the requirements of the plan, although the debtor will usually have a chance to submit a new plan before being forced into a conversion. A conversion can also be forced if the debtor is found to have pursued the bankruptcy in bad faith or violated the Bankruptcy Code. Involuntary conversions require a hearing before the conversion can be approved.

Bankruptcy Fraud and Other Crimes

Debtors and creditors do not always play by the rules of bankruptcy and there are federal criminal statutes that deal with bankruptcy crimes and other crimes peripherally involving bankruptcy.[21] These include concealment of assets, false oaths and claims, bribery,[22] embezzlement of funds of the bankruptcy estate,[23] adverse interest and conduct of officers,[24] fraudulent fee agreements,[25] knowing disregard of bankruptcy law[26] including filing in multiple jurisdictions and some specific frauds under Chapter 11[27]. In addition, some bankruptcy crimes can come under federal banking fraud law[28].

Most bankruptcy crimes are referred to the FBI or U.S. Attorney’s office by the U.S. Trustee’s office. In 2016, the Trustees’ offices referred over 2,100 cases to the FBI, which opened files on about two-thirds of them.[29] Many of these crimes involve the debtor’s attempt to conceal assets. Often, bankruptcy crimes are committed in parallel with other federal crimes, such as tax, bank, wire and mortgage fraud, perjury, money laundering, identity theft, misuse of a Social Security number, conspiracy and public corruption.

Criminal penalties available for bankruptcy crimes run the gamut from a slap on the wrist to major fines, restitution and jail time. Fines can range up to $250,000 per count and jail time can potentially run up to 20 years.

            A bankruptcy court can also impose its own civil punishments without having to meet the same burden of proof and due process as a criminal prosecution. These penalties can include dismissal of the case, denial or reversal of a discharge, contempt of court and denial of a claim.

Other Laws That Can Affect Bankruptcies

Two “outside” sets of laws may affect bankruptcies: the Servicemember’s Civil Relief Act[30] and the Securities Investor Protection Act.[31]

The Servicemember’s Civil Relief Act provides protections from some civil proceedings for active members of the U.S. military, as well as reservists, inductees and some other personnel. This Act can temporarily suspend judicial and administrative proceedings against military members, can limit or delay the ability of creditors to pursue default judgements and rental evictions and can stay or vacate the execution of judgements, attachments and garnishments.

The Securities Investor Protection Act, passed by Congress in 1970 as an addendum to the Securities Exchange Act of 1934, protects investors when stockbrokers go bankrupt. Chapter 7 itself provides for stockbroker liquidation proceedings,[32] but the Act provides investors with additional federal protection when their brokerage firms go bankrupt without sufficient assets to re-pay their account holders.

The Act created the Securities Investor Protection Corporation (known as the “SIPC”), of which most brokers and other people with securities licenses are members. The SIPC has an insurance fund to protect investors if a member goes bankrupt. When a brokerage house fails, the SIPC files a petition with the federal district court to initiate a liquidation proceeding.  

Under the SIPC proceeding, the SIPC trustee will try to replace lost stock certificates or pay each claim with cash. The SIPC trustee is charged with replacing the securities first, before resorting to cash payments.  

If the district court turns down the SIPC request, or if there is no SIPC action filed, the brokerage house can file for a Chapter 7 liquidation. If a brokerage house files for Chapter 7, the bankruptcy trustee is responsible for converting the brokerage house’s securities to cash as quickly as possible and making cash distributions to debtors in line with their claims.

The Effect of a Bankruptcy on Credit

Although credit scores are more within the creditor-debtor area of law, people often want to know what the effect of a bankruptcy is on credit. While potential creditors may deal with bankruptcies differently, there are a couple of things that happen to everyone’s credit after the bankruptcy case is concluded. 

Under the Fair Credit Reporting Act, a Chapter 7 stays on your credit report for ten years and a Chapter 11 stays on for 7 years.[33]  

On a percentage basis, the credit industry says that the higher the credit score before filing, the bigger a drop in that score after filing.[34].For example, filing a Chapter 7 with a score of 780 can take the score down to 540, while filing with a score of 680 can take it down to 530.

At the same time, some creditors, especially secured creditors or high-interest credit cards, may be less reluctant to give credit after bankruptcy since most of the debtor’s debts have been discharged and the debtor may be in better position to repay loans after a bankruptcy discharge.

Thank you for participating in Lawshelf’s video-course on the basics of bankruptcy. We hope that you’ve gained some insight into the bankruptcy process and the benefits it offers to potential filers, along with the risks. We also hope that you’ll take advantage of our other courses in the area of debtor and creditor law and welcome your questions or comments.