The amount of information you are required to disclose in a bankruptcy case is significant. In fact, the typical bankruptcy petition I file on behalf of clients is anywhere from 45 up to 60 pages long. The reason we kill so many trees with each bankruptcy filing is that the court requires a large amount of information.
You may think that all you need to disclose is your debts and you are off to the races. However, there is going to be more required, much of which will be disclosed in the Statement of Financial Affairs, or as most bankruptcy lawyers call it, the “SOFA”.
When I begin working with a new bankruptcy client I know almost immediately whether the case will be smooth or not based upon the information I gather that will go in the SOFA. Because of this, I thought it would be helpful to go over exactly what you are required to disclose in the SOFA and why. The SOFA has 25 questions. Let’s start plowing through them:
1. Income from Employment or Operation of a Business
You will be required to disclose all income you have received year-to-date as well as all income received during the prior two (2) years. This will show historically what type of income you have made and can clue the bankruptcy court in to any changes.
2. Income Other Than from Employment or Operation of a Business
While question number 1 deals with income you have received from your labor, question two is focused on all other types of income: Social Security payments, retirement distributions, tax refunds, gifts, inheritances, rental income, etc. Basically any other cash you have coming into your household needs to be disclosed here in question number two.
Again, the purpose of this disclosure is for the bankruptcy court and bankruptcy trustee to get a grasp on what you have traditionally earned and where your income is coming from.
3. Payments to Creditors
This question has a part (a) and a part (b). Part (a) requires that you disclose any payments to your creditors that were made in the last 90 days where the total amount paid was more than $600. To be clear, they are not asking if you have made a payment of more than $600; they are asking if you have paid a total of more than $600 to any particular creditor. For example, if you paid one creditor $225 for three months, you need to disclose that here.
Why do they care? A couple of reasons. First, the bankruptcy trustee is looking for what are known as preferential payments. If you pay a creditor more than they would be entitled to under a chapter 7 bankruptcy, the trustee can go and try and retrieve those funds and then distribute them on a pro rata basis among all of your creditors.
Second, the trustee is looking for fraudulent transfers or preferential payments to family members. If you owe money to a family member and repay them prior to filing your bankruptcy, the bankruptcy trustee can ask that family member to return the money and again distribute it evenly among all of your creditors.
While part (a) is applicable to people whose debts are primarily consumer type debts, part (b) applies to those people whose debts are mostly business related. If most of your debts are business related then you will be required to disclose all payments made in the last 90 days where the total amount paid to a single creditor was more than $5,850.
4. Lawsuits and Garnishments
Under this section you are required to list all lawsuits you have been a party to in the last twelve months. Here the bankruptcy trustee is wanting to know if you are a party to a lawsuit where you may expect to receive any kind of pay out in the future. Usually the cases listed here are collection lawsuits where you are being sued, but if you have been a plaintiff and expect to receive compensation in a lawsuit, it needs to be listed here.
Further, if you have had your wages garnished or any property seized by your creditors you need to list it here. The reason is there are circumstances where the bankruptcy trustee may be able to go to your creditor and recover money or property they have seized and sell it and distribute any proceeds to your creditors.
5. Repossession, Foreclosures, Voluntary Returns
Question five requires you to disclose any repossessions, foreclosures, or voluntary returns that have occurred in the last twelve months. Here again this is to give the bankruptcy court the big picture when it comes to your financial situation and to alert the bankruptcy trustee to any transfer of assets out of your name – even if it is through the regular collection process.
6. Assignments and Receivership
This one isn’t usually an issue for most people with consumer type debts. But if you have assigned (or transferred) any property to your creditors in the 120 days prior to the filing of your bankruptcy case you will be required to disclose it.
Likewise, if any of your property has been in the hands of a custodian, receiver, or other court appointed official within the one year prior to your bankruptcy filing you will need to disclose it here.
7. Gifts or Charitable Contributions
You are required to disclose all gifts or charitable contributions made within the last year with the exception of gifts made to family members that were less than $200 or charitable contributions to non-family members that were less than $100.
Again, the bankruptcy court and trustee are looking for the big picture in your finances and wanting to see if there are any transfers they can undo to bring money back to your creditors (as you are seeing, this is a theme in the SOFA).
Any losses sustained from fire, theft, gambling, or other injury or casualty during the last year prior to your bankruptcy filing.
Again, they are looking for potential assets, such as personal injury claims or lawsuits you may be involved in where they could swoop in and take the settlement on behalf of your creditors.
9. Payments Made Related to Debt Counseling or Bankruptcy
The most typical item that is placed here is the amount of money you have paid your bankruptcy attorney. If you have been involved in debt counseling or paid debt settlement fees in the last year you will be required to disclose those as well.
With attorney’s fees the bankruptcy trustee wants to know what you paid your attorney. In bankruptcy, what your attorney charges is overseen by the bankruptcy court. If they are charging outside the norm in your state, they may ask your attorney for justification as to why they charged you so much.
I have also seen bankruptcy trustees look into fees charged by debt settlement companies and loan modification companies because a large fee was charged but no work done. In such cases they may try to evaluate if there is any way to recoup money for your creditors.
10. Other Transfers
This is the catch-all question for transfers of assets. You are required to disclose any asset you have transferred (i.e. sold, given away, etc.) in the last two years, other than in the ordinary course of your business of regular financial dealings.
This means if you have sold a car or given property away in the last two years it needs to be disclosed. The reason being is that you are not allowed to give your stuff away and then file for bankruptcy. By requiring you to disclose these transfers the trustee can evaluate whether the they can recover assets that were either given away or transferred for less than what they were actually worth.
11. Closed Financial Accounts
If you have closed a financial account in the last twelve months you must disclose it, including the balance that was in the account when it was closed. The reason here is if you have closed an account prior to filing your bankruptcy case that had a substantial amount of money in it the bankruptcy trustee is going to want to know where it went. If you can’t account for it they will likely assume it is under the mattress and may ask for you to turn it over.
12. Safe Deposit Boxes
You are required to disclose any safe deposit box you have had in the last year. And you guessed it, because they want to know what stuff you have and where it is.
Any set-offs by a creditor or a bank in the 90 days before your bankruptcy was filed must be disclosed. The most common set-off is when you owe money on a credit card you have through your bank or credit union and they take money out of your checking account to cover a missed payment or delinquent account without your permission.
14. Property Held for Another Person
The most common disclosure here is when you store property at your home that belongs to someone else. For instance if you are driving a car that belongs to a family member or friend then you would disclose that here. The answers to this question often fill in gaps for the bankruptcy trustee. For instance if you don’t disclose owning a car the trustee may wonder who you get around.
15. Prior Address
You are required to disclose any prior address you have lived at in the last three years. This can help the bankruptcy trustee understand what your housing situation has been and also how long you have lived in your current state. If you have lived in your current state less than two years, a different set of bankruptcy exemptions will apply.
16. Spouse and Former Spouses
If you are married but filing without your spouse, you must disclose your spouse’s name here. If you have been divorced or lost a spouse through death in the last eight (8) years it must also be disclosed.
The reason for this is to help the bankruptcy trustee understand if there are any additional assets that need to be disclosed in community property states, possible life insurance proceeds of a recent death of a spouse, or property received in a divorce settlement.
17. Environmental Information
You must list the name and address of every site for which you have received notice in writing by a governmental unit that you may be liable or potentially liable under or in violation of an Environmental Law.
As you might guess, this one is not too common. The reason you must disclose this information is if you had such a situation the Environmental Protection Agency may have a claim against you in your bankruptcy.
18. – 25. Nature and Location of Business
Questions 18 through 25 are all for people who run their own business. You will be required to disclose names, tax ID numbers, member and/or shareholders, and other various information on your business.
Depending on the chapter of bankruptcy you are filing there may be assets that can be liquidated or if you are filing a chapter 13 bankruptcy it could influence how much you pay your creditors through the bankruptcy.
So, if we look under the cushions of the SOFA, we find that we have to disclose a lot of information. And as with all bankruptcy provisions, the more accurate you can be the more your bankruptcy lawyer can help you and make the bankruptcy process as smooth as possible.
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John Skiba, Esq.
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