Statement of Financial Affairs: Part I

Statement of Financial Affairs

When filing for bankruptcy, the forms that are filed with the Bankruptcy Court are called your petition and schedules.  The petition is what initiates the bankruptcy case and the schedules are all of the dozens of pages of documents that are filed with it. There is schedule I and J, which are basically your income and expenses, and schedules which list your creditors and assets.  This article will discuss one particular part of your schedules that must be filled out correctly, the statement of financial affairs.  It is a statement concerning your finances such as your past income, business dealings, dealings with creditors, and even information about lawsuits and assets.  We will go over this form line by line, explaining what is asked for and some of the reasons why this information is requested in your bankruptcy filing.signing papers

The first section of the form asks for your income from employment, trade, profession, or operation of a business for the current year and the two prior years.  So, for the current year it means the debtor must calculate the year to date income from their employment, wages, work done on contract basis, work performed and paid for in any such manner, and income or profit from your business.  The two prior years can usually be gathered by looking at the tax returns for those tax years.  The second section asks for all other income for these years, such as social security, government benefits, judgments from law suits, child support, and other such income received other than from your employer, trade, profession, or business.  The third section ask, if your debts are primarily consumer debts which most cases are, for all payments on loans, installment purchases of goods or services, and other debts to any creditor within 90 days preceding the commencement of the bankruptcy case unless the aggregate value of all property is less than $600.  If your debts are not primarily consumer debts, then this amount is $5,850.  So, in primarily consumer debt cases, if you paid an unsecured creditor, such as a credit card company, $2000 a month before filing, you must list it here.  The reason this is required is that if you paid one creditor a large sum of money, but didn’t pay the other creditors anything, then this could be considered a ‘preference’, meaning you preferred one creditor over the others.  The funds could be taken and administered equally to all the creditors in your case.  So, for example if you paid a credit card company $10,000 that you owed them one month before filing the bankruptcy, you would list it here.  The Trustee in your case could attempt to get the amount back and distribute it to all of the creditors equally so that one creditor doesn’t receive a windfall while the other creditors get nothing from you.  It also ask for any payments that were made to ‘insiders’ within one year before the bankruptcy filing.  A common example of an insider would be a family member.  For example, a $10,000 payment on a loan owed to your father, paid a month before your bankruptcy filing, could be considered an insider payment and the money could be taken and distributed evenly to all of your creditors.  This is a general explanation of preference payments, but the point is that you must list any such payments made to creditors over $600 during the last 90 days here. 

The fourth section ask for you to list all law suits and administrative proceedings where you were a party within one year before the bankruptcy filing. So, if you have a pending divorce, a personal injury lawsuit, or a pending workers compensation case you would list it here.  It also ask to list all property that has been garnished, repossessed, or otherwise taken within one year before filing.  This means if your checks have been garnished you have to figure up how much has been garnished the last year and list the amount.  The fifth section ask to list all repossessions, foreclosures, and returns.  If your vehicle was repossessed in the last year, you must list information about the automobile and the creditor.  If your house has already been foreclosed on, then you would list that information here.  In the sixth section it ask for all assignments of property for the benefit of creditors made within 120 days of the filing.  There are certain proceedings allowed by state law whereby you transfer all nonexempt assets to an assignee that liquidates them and distributes them to your creditors, similar to how bankruptcy trustee would operate.  It also asks to list all property that has been in the hands of a custodian, receiver, or court-appointed official within one year of the bankruptcy filing.  An example of this is if you own or operate an apartment house and it is foreclosed on, then a third party may install a receiver to collect the rents.  These types of actions or events must be listed here. 

The seventh section ask for any gifts or charitable contributions given within one year of the filing except for ordinary and usual gifts to family members aggregating less than $200 in value per individual family member and charitable contributions aggregating less than $100 per recipient.  This is asked for in order to determine if any fraudulent conveyances have occurred.  In other words, it is to see whether you may have transferred assets in the last year to another family member or charity in order to keep it out of the bankruptcy estate. For example, if you are considering filing a Chapter 7 bankruptcy and you have a house in your name with $100,000 of equity in it, then you may not want to file the Chapter 7 since your house would not likely be an exempted property, and would be subjected to the bankruptcy estate.  So, if you tried to transfer the deed to your father, and then file the Chapter 7 bankruptcy eleven months later, you would need to list the transfer here and such a transfer could be considered a fraudulent conveyance and undone, and the house made part of the bankruptcy estate.  This is why it is important to talk to an attorney before doing anything in preparation for the bankruptcy filing, since something like this could get you in a lot of trouble with the bankruptcy court and potentially get your property taken from you once the case is filed.  Many times a potential bankruptcy debtor thinks that they can just transfer the property to a relative, file the bankruptcy, and afterwards just transfer it back.  This type of hiding assets from the bankruptcy estate would likely be considered a fraudulent conveyance, and could result in the Trustee suing your family member to get the property back.  Not only can this result in the loss of the property but it could mean you would be denied any discharge as well.

This has been the first part of this two part blog publication on the Statement of Financial Affairs.  Next week, we’ll talk about the rest of this form, but in the meantime if you have any questions about filing for bankruptcy then feel free to give our Alabama bankruptcy lawyers a call today.



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