Bankruptcy Statement of Financial AffairsWhat does a SOFA have to do with bankruptcy? Part of the required paperwork is called the Statement of Financial Affairs or SOFA. The SOFA is a series of questions that must be answered. This is where everything that has not already been provided in the petition and schedules is listed.

The first page of the SOFA gives specific instructions. The first few questions deal with income. Unlike Schedule I which is for current monthly income or the means test which looks back six months, the SOFA asks for your year to date income and the past two years of your income. It asks for wages and money from business as well as all other income. All other income includes annuity payments, interest income, rents, investment income, unemployment compensation, worker’s compensation payments, spousal support, child support and lottery winnings to name a few.

The next are questions about debt payments. If the bankruptcy consists of mainly consumer debts, then any payments made in the 90 days prior to filing that equal or exceed $600 must be disclosed here. These are considered preference payments and the Trustee can choose to go after return of the payments and divide them among the other creditors. All payments to insiders, like your family members, made within the past year must be listed. If you are married and filing a sole petition you must also account for any payments made by your spouse. If significant payments have been made to family members and none to other creditors then it is wise to wait until one year has past to file a bankruptcy. Otherwise there is a very real risk that your relative will be sued by the Trustee for return of the payments.

Repossessions, foreclosures and returns are also listed on the Statement of Affairs. All assignments, receiverships, transfers and set-offs are also listed and fully described. The bargain you make when filing for a bankruptcy is full disclosure of your entire financial picture in exchange for discharge of all dischargeable debts.

If anyone has sued you, there is a place to put the case information including case caption, case number and court. Any garnishments and repossessions are also listed.

Gifts to an individual or charitable contributions in the past year must also be listed with a few exceptions. All losses from fire, theft and gambling in the last year are described.

Payments to your attorney and for the credit counseling course are listed.

If you have a safe deposit box the contents are listed. If you are using anything that belongs to another person that is listed. Many people forget to list that DVR or cable modem that is rented or on loan.

If you live in California or any other community property state you must list your spouse if they are not filing with you.  If you have been divorced less than nine years, you must list the name of your former spouse.

If you have a business there are a number of questions that must be answered. The more complex the business the more questions that must be answered.

The SOFA is a lengthy and complicated series of questions that must be answered completely and correctly or your bankruptcy case could have problems. If the answers are not complete or don’t match with your tax returns and other materials that the trustee will review you will be challenged and may lose your discharge. Make use of a trusted and knowledgeable legal adviser to make certain that your case is well prepared.

Other S’s:

Image by Leo Reynolds.

O is for Organize

Organizing is something that may be hard to do. Many of my clients have been putting their heads in the sand and leave mail unopened and unorganized until they see me. It is a normal tendency to ignore things that feel out of control. When those bills and collection letters come flooding into your mail, it can be overwhelming.

The first step to getting a handle on things is to tackle organizing those bills and other unopened mail. It doesn’t matter what is in there for now. It could be unopened mail, opened mail, or all mixed up. You need to find and organize all your financial information before you can file a chapter 7, or chapter 13 bankruptcy.

Set aside a block of time, even if it is only a twenty or thirty minute window. Gather up all that paper and find a place to begin to sort it. Somewhere you can leave the project and return to it is ideal. Have several bags or boxes handy. You may want one for trash, one for recycling and one for documents that need to be shredded. Label each bag or box.

Start with the steps below and get as far as you can in your scheduled time. When you are ready set aside another block of time and continue through the steps. Repeat until complete.

Organizing Mail Steps

  1. Open it everything. Use a letter opener or some other tool to make it easier. Toss all the envelopes that the bills and statement arrived in into your recycle bag. There is no need to keep that extra outside wrapper.
  2. If you are unable to pay the bills and are planning to file bankruptcy, or you pay your bills online, you can also toss the return envelopes into your recycle bag.
  3. Sort by type – medical in one pile, credit card bills in another. Utility bills and ongoing household expenses in another, etc.
  4. Sort each type file by creditor or sender. All PG&E together, all Chase cards together and all Aunt Susie’s letters together. Put all Chase collection letters (from agencies and lawyers) with the original Chase bills.
  5. If you have more than one account with a creditor (like two separate American Express card accounts) separate those accounts in different piles.
  6. Organize each creditor pile by date with the most recent on the top.
  7. Finally, place each stack into a file folder and label the folder with the creditor name and the last 4 digits of the account number. In my office we prefer that you do not use staples. If you bring in paper we will scan it and return it to you and staples only slow down the process.

Congratulations! Your bills are now organized and ready to work with whether you are looking at debt consolidation plans, a bankruptcy or just want to know how much you owe. For some tips on charting your financial future click here to read Cathy Moran’s article.

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Image Credit: Leo Reynolds

C is for Chapter 7

C is for Chapter 7

Chapter 7 is a complete liquidation of your debt through a process in Federal Bankruptcy Court. If you cannot afford to meet your monthly living expenses and pay your debts, you may be able to liquidate your debt. Not everyone will qualify to file Chapter 7 under the Bankruptcy Code’s “means test” and certain types of debt cannot be discharged or wiped out (such as most federally guaranteed student loans, many taxes and any outstanding family support obligations).

Means Test

At its simplest, the means test is based on the average California median income according to family size. The median income levels recently dropped to reflect the state of the economy. For a single person it is $47,683 a year and it goes up as family size increases. See the United States Department of Justice Census Bureau Median Family Income.

There is a long form of the means test that factors in secured debt payments such as your mortgage and other necessary expenses like medical bills and insurance. This is a complex form best undertaken by a local knowledgeable bankruptcy professional. Completion of the long form will let you know if you pass the means test even though you have above median income.

Required Courses

You will also be required to take two courses from California approved credit counseling providers. The first course must be completed before you can file (within 180 days) and the second course is completed after filing and before you can obtain a discharge. I think of theses courses as the ticket in and the ticket out of the bankruptcy proceeding.

Chapter 7

After you file for bankruptcy, most of your assets become property of the estate and subject to sale and distribution to the creditors. However, in most consumer cases all the assets are exempt and are not available for liquidation.

The debt liquidation is called a discharge. You cannot get a Chapter 7 discharge of your debts more often than every eight years. Only individuals obtain a discharge of their debts. If a corporation or partnership files for Chapter 7 relief the entity is dissolved.

The entire process of a Chapter 7 from beginning to end is generally four to six months. If there are any non-exempt assets to be sold it will take at least several months longer

A Chapter 7 will stay on your credit report for 10 years from the date of filing. The impact on credit is generally minimal because most people who need to file a bankruptcy already have low credit scores. Also there are ways to rebuild credit without going into debt after you have filed

Check out consumer protection attorney Jay Fleischman who thinks C is for Creditor. He provides a thorough explanation of who your creditors are.

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Bankruptcy Assets

A is for Assets

Make me a list of your assets, I say. But I don’t have any assets, you say.

It’s a common misunderstanding that assets must have a high value. Assets are simply all the property that you have and include every form of property not only real estate (the house, condo, vacant lot, commercial building and/or apartment building). All forms of assets must be disclosed if you file for bankruptcy. Assets that someone is holding for you and assets that are out of the country are all listed. There is even a place to disclose assets that belong to someone else that you are holding for them.

Assets include:

— accounts receivable, bicycles, books, cars, trucks, motorcycles, scooters, cemetery plots, cremation certificates, clothing, jewelry, coin collections, computers, electronics, furniture, insurance policies, stamp collections, pets and art on the walls.

Assets include future rights such as potential income tax refunds. Assets also include intangible things such as business goodwill, the right to sue someone, or stock options. All assets must be disclosed on the bankruptcy schedules and exemptions remove the exempt assets from property of the bankruptcy estate.

As Hawaii attorney Stuart Ing says “For bankruptcy purposes, it is better to err on the side of disclosing more than less. If an asset is listed and the trustee chooses not to sell it, you can keep it. If it wasn’t disclosed, the trustee can still come back years later and sell it to satisfy your creditors.”

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Can I still file for bankruptcy if I’m working? Can I file for a chapter 7 bankruptcy if I’m working? Yes.

 You may have been out of work for a period of time or have large medical bills that are making it impossible to get caught up financially.

How much you earn and what types of debt you have will determine what bankruptcy chapter you file but most of the time people who need the help of the bankruptcy court qualify to file. Simply put, if you earn less than the median income for your state you will pass the means test and may file a chapter 7 bankruptcy.

The means test is based on the median state income which you can find on the United States Department of Justice website. It means that if you earn more than the median income amount in your state the presumption of abuse is raised if you file a chapter 7 bankruptcy. If a presumption of abuse is found you may not be able to get a discharge of your debts.

If you earn more than the median income, you may still qualify for a chapter 7 depending on the type of obligations you have to pay each month. In this case you will need to calculate a long form of the means test. If after entering secured debts, taxes paid, medical expenses and other qualifying expenses your income is within guidelines then you can file for a chapter 7 bankruptcy.

Even if you qualify to file a chapter 7 there may be reasons why it would be in your best interests to file a chapter 13. If you have an underwater house, owe incomes taxes or obligations arising from a marital dissolution filing a chapter 13 bankruptcy might be to your benefit. It is a complex, fact specific determination, so consult with a knowledgeable local bankruptcy attorney to determine the best strategy to meet your goals.


Service of Summons and Complaint

People often come into my office asking about bankruptcy because they have been sued. It is stressful and emotional to have a process server show up at your door and hand you papers letting you know you have been sued. You start to imagine the worst and expect the creditor to take everything you have.

You need to see an attorney right away so they can evaluate the lawsuit. In California you have 30 days to respond. If you do not file an answer within those 30 days the creditor will ask for and receive a default judgment. That means the creditor does not need to prove you owe the money they are asking for. They will have a judgment that is valid for 7 years and can be renewed every 7 years after that.

Often I see people who have ignored the summons and the 30-day warning. It is human to freeze under stress and think there is nothing you can do. You may think you owe the money due to a deficiency after foreclosure on a house, or a credit card bill that ran up, or medical bills that you were unable to pay. However, there are often mistakes made by creditors with accounting and recording keeping so don’t feel bad making them prove up the claims.

It is also confusing because there are other dates on the papers attached to the summons that refer to status conferences and the like. You may end up with a default judgment that occurs before the status conference date. When that happens none of those later dates matter. The default judgment ends the active case and the creditor will proceed to attempt to collect the judgment.

Bankruptcy will not only stop the pending law suit, but if judgment has already been entered against you it will stop collection efforts on that judgment. When you file for bankruptcy the bankruptcy court will immediately enter an order for an Automatic Stay. This stay order stops any collection efforts from proceeding against you, including any pending lawsuits and collection of judgments.

The Superior Court and the creditors are notified by your bankruptcy attorney that you have filed for the protection of the Bankruptcy Court and no action should be taken against you once they have received the notice. Filing bankruptcy provides immediate relief because the lawsuit will not proceed, you will not incur court costs or attorney’s fees to defend that lawsuit, and your creditors will not be able to collect on judgment and go after any of your assets or income.

If judgment has already been entered the creditor can garnish wages and bank accounts, and take non-exempt property. Filing bankruptcy will stop any type of garnishment or execution on your property. At the completion of the bankruptcy, entry of the bankruptcy discharge and final decree will void the judgment that was entered against you and eliminate the underlying debt.

If you have been sued or are expecting to be, call a bankruptcy attorney in your area immediately. You can get help and relief from the situation through the protection of the Bankruptcy Courts.