I is for Income

What income do I need to disclose in my bankruptcy?

All of it gets listed one way or another. Your wages, commissions, bonuses, regular contributions to the household by a family member or housemate, retirement and pension income, workers compensation and unemployment. Loans don’t count and one-time contributions also don’t count.

Means Test Income

For purposes of the means test, the U.S. Bankruptcy Code defines current monthly income as including: “any amount paid by any entity other than the debtor (or in a joint case the debtor and the debtor’s spouse), on a regular basis for the household expenses of the debtor or the debtor’s dependents (and in a joint case the debtor’s spouse if not otherwise a dependent)…” Benefits received under the Social Security Act, payments to victims of war crimes or crimes against humanity on account of their status as victims of such crimes, and payments to victims of international terrorism or domestic terrorism on account of their status as victims of such terrorism are excluded from the means test.

The means test looks back at the past six months on income as defined above. If you file a bankruptcy in January, the past six-month (or look back) period is July through December. It is this six-month period that will determine what your average annual income is. You must compare your average annual income based on the past six-month period to the median average for your state to see if you qualify to file a Chapter 7 bankruptcy. If your income is too high to file a Chapter 7 you may still qualify to file a Chapter 13.

Income on Schedules and the Statement of Financial Affairs (SOFA)

There is a Schedule I for Income where you list your monthly income including Social Security payments and other income that might have been excluded form the means test look back income. This schedule will be compared with your expenses that are listed on another schedule. One of the bankruptcy complexities is that income and financial information is listed in more than one way within the same bankruptcy case.

There is also a question on the SOFA that asks for the past several years of income broken down by wages and other types of income. Your answers to these questions can come form your income tax returns.

For another slant see Jay Fleischman’s I is for Income. Also see Cathy Moran’s I is for IRS and Christopher McAvoy, I is for Income Tax Refunds.

More I’s:

Image credit: Leo Reynolds


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.”

Other Lawyers in the Alphabet Game:

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.



Federal Building

What can I expect at the First Meeting of Creditors?

Since I often hear this question, here is some general information on a Chapter 7 hearing (341 hearing) in the Northern District of California.

Plan to arrive 20 to 30 minutes early and do not bring children with you. To enter the building you’ll have to pass through a security screening. Anyone who wishes to enter the building must have a government issued picture ID. If you’re in the habit of carrying a penknife or similar tool leave it at home or in your car.

For the 341 hearing you MUST have your driver’s license or other picture ID and your social security card with you. If the trustee wants to see other documentation you will have received this request prior to your hearing. Several different cases are set for the same time so take a seat and wait for your case number and name to be called. Watch these videos to see what some of the meetings look like.

After being sworn in under oath and a few general instructions, you’ll be asked to show your identification documents to the Bankruptcy Trustee. The trustee will look to see that the information on your documents matches that on your bankruptcy petition.

You, your attorney and any co-debtor will be sitting in the front of a room with other people in it. Most of these people are debtors like you with their attorneys. Sometimes there are debtors alone without attorneys. Occasionally there are creditors attending to examine debtors under oath.

The proceedings are generally recorded so you must speak clearly and with enough volume to be heard well if the recording needs to be played back some day.

You’ll be asked questions about the forms that you filled out — are they complete and accurate? Are there any changes or errors you now know of? Do you expect to get an inheritance in the next 180 days? Along with these sorts of general questions, you may also be asked about your specific circumstances such as: How you valued an asset, or how your business assets are being used?

Creditors rarely show up and usually in a Chapter 7 bankruptcy this will be the only hearing you’ll have. If there is a fraud issue, or other motions you’ll have additional hearings.