Chapter 7 and 13 Bankruptcy Blog

Disclaimer: The following materials were developed by a paralegal for training purposes only.  They are meant only to be used by attorneys and those working under the direction of attorneys. Any other use constitutes unauthorized practice of law.

What is a cheat sheet? It is a tool that provides you with quick tips for different assets on Schedule B as it relates to most no-asset, consumer based, bankruptcy cases.  Use of this tool will remind you to check and reference the common information needed on this Schedule as well as other areas of the petition so that your petition is more consistent and accurate; but by no means is this material exclusive and applicable to all cases.

Cash on Hand

It is not required in all states to use the “Cash on hand” property type on Schedule B.   However, if it is required in your state, make sure the cash on hand amount you list reflects the money left over AFTER the debtor has paid their allowable expenses (rent, mortgage, car, groceries, etc.) as well as their attorney fee.

Checking, Savings, etc.

Make sure the amount for this asset reflects the money left over AFTER the debtor has paid their allowable expenses (rent, mortgage, car, groceries, etc.) as well as their attorney fee.

Also, make sure you check your state exemption allowance to ensure the debtors are fully protected. For example: if the debtor reports $1,500 in a checking account but the state exemption allowance is $500, this leaves $1,000 of unexempt equity.  This could cause problems for the debtor as well as the attorney.  Not only could the debtor lose the asset but the attorney will spend time defending the matter with the trustee and creditors.

Note:  In some states and jurisdictions, bank statements are filed as an Attachment to Schedule B when the bankruptcy petition is filed.  The bank statements are required to be current and normally in date order, spanning a period of six (6) months in most cases. Security deposits with landlords

If the debtors are renting, make sure you include the deposit paid to the landlord on Schedule B. Listing this asset does not take money from the debtor; but not listing it could throw up a red flag to the court that you may have left out additional information.

Household goods and furnishings (no lien)

Every debtor filing bankruptcy has some type of household goods and furnishings, even if it is an empty guitar case where they keep their clothes.  In addition, even if the debtor is renting a furnished apartment, he or she will have some type of household goods and furnishings such as a trash can, knives, forks, spoons and bowls, etc.  Therefore, this property type needs to always be included on every bankruptcy petition you prepare.

Household goods and furnishings (with a lien)

Any household goods and furnishings with a lien attached to them should be listed separately on Schedule B.  Then, if the debtor’s intend to keep the asset and has the income to continue making the payments, the monthly payment needs to be listed on Line 13(b) of Schedule J.

Books, Pictures, other Art Objects, Collectibles

99.9% of all debtors will have assets to be recorded under this property type on Schedule B.  Standard items I have encountered when dealing with the average no-asset case are Hummel, Tiffany, and Avon collectibles as well as family photo albums.  Normally, most of these items are exempted; but if you encounter a situation where the debtors have assets with unexempt equity, the attorney may order an appraisal to protect the debtor.

Wearing apparel

Every person filing bankruptcy will have wearing apparel.  However, debtors often do not think their clothing is worth much money and will normally write $0 as to the value of their clothing when filling out the client intake forms.  However, even if the debtor only owns a pair of sneakers, a t-shirt and a pair of shorts, there is at least a value of $1.00 that is listed under this property type on Schedule B.

One good rule of thumb is to include the number of people in the household when you write the description for this property type.  For example:

Wearing apparel and personal effects for 2 adults, 1 infant and 1 teenager

Next, make sure these family members are all accounted for on Schedule I of the petition.  This also provides backup for the additional expenses you list on Schedule J for such items as baby diapers and formula, school sports expenses, etc.

Furs and Jewelry

If the debtor is married they will normally always own a wedding ring.  Therefore, the court will look for this asset to be listed on Schedule B for any married debtor.  Of course, you may encounter the rare incident where a married person has no wedding ring, but you need to make sure this information is recorded in the file before you decide not to list it on Schedule B.

Firearms and Sports, Photographic and Other Hobby Equipment

Some assets under this property type can be used to make money. If so, the asset needs moved to Item 29: Machinery, Fixtures, Equipment and Supplies Used in Business.

If the asset is NOT used to earn income; add the words “for personal use only” in the description.  Example:  digital camera for personal use only

Interests in Insurance Policies

Often, you do not know about the term life insurance policy until you get to the paycheck stubs and find the deduction from the debtor’s paycheck.  Distinguish between “term” and “whole life” policies for this property type on Schedule B.  And because “term” life insurance policies have no cash value you will leave the amount of “$0” as the market value.  However, “whole” life insurance policies will have a market value. Alimony, Maintenance, Support and Property Settlements

ONLY list this asset on Schedule B if the debtor is OWED money.  This area of Schedule B is NOT for recording alimony, maintenance and support income from an ex-spouse.  Ongoing income that the debtor is receiving for alimony, maintenance or support from an ex-spouse needs to be listed on Schedule I.  Only the arrears would be listed on Schedule B under this property type.

Other Liquidated Debts Owing Debtor Including Tax Refund

Tax refunds and “anticipated” tax refunds would only be recorded under this property type on Schedule B if they are received (or to be received) within the next 90 days.  Therefore, recording a tax refund in this area is only required during certain months of the year.

Automobiles, Trucks, Trailers, and Other Vehicles

722Redemption.Com is an excellent resource for debtors who are in need of transportation but are unable to qualify for a loan to get a motor vehicle.  Simply refer them to this website where they will complete a short form and submit it to US Bank.  A representative will call them, discuss their case and make recommendations.  The attorney or law firm does not need to do anything except refer the debtor to:  http://www.722redemption.com

The 910 Day Rule: Do not forget that if the debtor has been making payments on their motor vehicle for a period of 910 days (about 2.5 years) or longer they may be eligible for a cram down.  In other words, the debtor may only need to pay back the market value of the motor vehicle, not what is owed on it; and the interest is normally reduced also.  This can save the debtor hundreds of dollars.

Note:  The rules surrounding 910 day vehicles are new and the law in this area is still developing.  Prior to the enactment of BAPCPA in October, 2005, there were no such rules. Therefore, when you talk with attorneys about this topic they may not have heard of it because they are not up to date as they may need to be.  You should also be aware that the rules on 910 day claims vary from state to state.

If the debtor is going to keep the motor vehicle that is in their possession, make sure to include the monthly payment under Item 13(a) of Schedule J.

Motor vehicles that have been repossessed, returned and are no longer in the debtor’s possession are NOT recorded on Schedule B.  Instead, the debt is listed on Schedule F so that it can be discharged in the bankruptcy.  Schedule B is only for assets that are in the debtor’s possession.

Office, Equipment, Furnishings and Supplies

A typical use for this property type by the average consumer is a computer and printer. If the debtor uses their computer and printer for business purposes, list it under this property type.  If they only use their computer and printer for personal use, the items should be placed under “Household goods and furnishings” instead.

If the debtor does use these items for business purposes, make sure you complete Items 1 as well as 18-25 on the Statement of Affairs as well as recording the income from the business on Schedule I.

Animals

This property type on Schedule B is only for listing animals with market values of $600 or more including animals that are used to earn an income.  If the animal is used to earn an income, that income needs to be reported on Schedule I; and if the income is considered to be a business, Items 1 and 18-25 of the Statement of Affairs needs to also be completed.

Quick Tips

Every time you encounter a lienholder and the debtor’s are going to continue paying for the asset, immediately place the monthly payment on Schedule J.  This will help you to maintain consistency and accuracy as well as having these portions of Schedule J completed when you get to this area of the petition.  (Of course, if the debtor’s are going to surrender an asset and no longer make monthly payments, the payment would NOT be placed on Schedule J.)

Debtors either OVERestimate or UNDERestaimate market values for their assets.  That is why you need to question every single figure the debtors provide to you.

It is suggested that you wait until you have finalized the petition before you select exemptions for Schedule C. This is because you normally find additional assets as you work through the petition and if there is an asset that needs to share exemptions with another asset, you will be able to distribute them for a more accurate protection of all assets.

WEB SITE REFERENCES

An excellent blog to read for good information from knowledgeable bankruptcy attorneys is http://www.bankruptcylawnetwork.com/

Help When Preparing Petitions http://www.bankruptcylinks.info/about/prepare-petitions

Free Supplies for Law Firms http://www.bankruptcylinks.info/about/free-supplies

Free Office Related Supplies for Law Firms http://www.bankruptcylinks.info/about/free-stuff

Free Bankruptcy Training Videos http://www.youtube.com/user/MsVictoriaRing

Attorney Marketing Links http://www.bankruptcylinks.info/about/marketing-links

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– Victoria Ring, Colorado Bankruptcy Training

For those of you just entering the field of debtor bankruptcy, this article will be very helpful to you because it addresses a very common problem that occurs when working with debtors.  The common problem is that debtors want their cake and eat it too. This statement may sound a little harsh but allow me to explain:

I am finding that many new attorneys entering the bankruptcy field do not have the training to screen their clients before sending us the petitions for input.  One of the easiest methods for an attorney to screen their clients is to find out how much equity is in their home before taking the case. During the intake it only takes a minute or two to find out approximately how much the debtors owe on their mortgage.  Then, while the client is still in the office, go to a computer and do a search on www.zillow.com.  Although Zillow is certainly not a court authority by any stretch of the imagination, it will tell you immediately the approximate amount of unexempt equity the debtor may have.

For example: I had a case today for a California debtor who had just divorced. There was $200,000 of equity in the home.  Since the debtor was divorced, he only had to claim $100,000 of this equity.  Under the 704 California exemptions, the debtor was provided with a healthy $75,000, leaving him with $25,000 that was UNEXEMPT.  Was the debtor happy about the $75,000 exemption?  Of course not.  The debtor was angry because he wanted to keep the $25,000 plus have all his debts excused.  Although most debtors may not realize it at the time, in reality they are being unfair and asking the attorney to commit fraud by making this selfish demand.

Unfortunately, most of the new bankruptcy attorneys that I work with do not understand the bankruptcy law well enough to properly advise their client.  Instead, they accept the case, have the client fill out the intake forms, pay the fees and send the paperwork to my team.  We input the petition and discover the problem with the equity in the home.  By this time, the attorney has invested his or her time, the debtor has spent several hours gathering information and we have worked inputting the case.  When we discover this problem we alert the attorney, the attorney talks to the client and the debtor decides not file bankruptcy.  The attorney is forced to refund some of the money because the attorney did not know how to properly explain the advantages to the debtor of filing a Chapter 13 instead.  In fact, if the attorney had called to discuss this case with me, I could have taught him how to turn this unhappy client from a Chapter 7 to a positive Chapter 13 because I deal with these issues all the time.

For example, this particular debtor had $38,000 in Schedule F debts and $25,000 of unexempt equity in his home.  The debtor did not want to surrender his interest in the property because he wanted to make sure his ex-wife and children had a home to live in.  This is admirable, but the court and creditors look at numbers because they are not emotionally tied to debtors. New attorneys must learn these types of skills so they can help the debtor understand why it may or may not be to their advantage to file bankruptcy at this time.

But for the particular debtor in our scenario, it would have been to his advantage to file a Chapter 13.  First of all, we could have proposed a 100% Plan which would have more than likely protected the $25,000 of unexempt equity.  Secondly, the Chapter 13 would have eliminated $73,000 in interest charges over the 5 year Plan period, the debtor would have paid off his student loan in full as well as the unpaid personal income taxes from 2002.  By presenting these positive factors to the debtor, the attorney may have saved this case and never had to refund money.  Plus the debtor would be happier once he understood the advantages.

(Note:  A key to good marketing is to point out advantages for the client.  If you can show a client how much money you can save them and how, they often will do whatever is necessary to comply with your requests and invest their time and money making it happen.  This is what makes a happy client and this is what generates referrals.)

But in this case, the attorney did not call to discuss the matter with me.  He simply told the client that he would have to pay $25,000 or lose his home.  This naturally scared the debtor to death and he decided not to file. Who can blame him?

It amazes me when things like this happen; and they happen quite frequently.  In fact, it may be shocking to you also.  I hope so, because I want this article to be shocking enough to help to prevent this from happening to you.  Also, please understand that this article is not intended in any manner to provide legal advice.  I am not an attorney and I am not trying to predict what a bankruptcy court to do by writing this article.  I am simply trying to help you understand the concept of fairness so you will know how to better deal with situations exactly like this in the future.

I wish you the best of success and encourage you to continue learning and working hard to protect the debtor; but in a fair and balanced way.

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Beginning on June 15, 2010, the federal government will begin mailing one-time $250 rebate checks to Medicare beneficiaries who have hit the drug plan’s coverage gap known as: the doughnut hole.

The payment is part of the new health care reform law and people on Medicare do not have to apply to receive the rebate.  Checks will be mailed roughly every six weeks until the end of the year.

Help with drug costs will continue in 2011 when those on Medicare will receive a 50 percent discount if they reach the doughnut hole.  Savings will continue to increase over the years until the doughnut hole is closed in 2020.

What Does This Mean For Those Who Prepare Bankruptcy Petitions?

If you have a debtor who receives an income from the federal government, you need to ask them if they receive Medicare.  If so, ask them if they received the $250 rebate check.  If so, this additional income will need to be added to Schedule I and the Means Test within the bankruptcy petition.

For more information visit: http://www.medicare.gov

Upcoming Bankruptcy Training Seminars

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