- Why Do I Need to Provide This Information?
- Top 10 Things to Remember to Tell Your Bankruptcy Lawyer
- Things to Tell Your Bankruptcy Attorney: The Bottom Line
When first meeting with a bankruptcy attorney, it is certain to be in a moment of stress. You have nearly always been provided with a questionnaire to complete for that first consultation meeting. It could be 4 pages long; it could be 20 pages long.
It depends on the bankruptcy attorney.
Your bankruptcy attorney will ask questions about your employment, your income, your assets and property, your debts, your family, and more.
It is a lot to remember. It is a lot of work.
And it gets worse. Many bankruptcy law firms require you to complete a further questionnaire that will be anywhere from 40 to 60 pages long. Fortunately, when you hire my office, you will not be required to complete such a lengthy questionnaire, but you will be asked a myriad of questions regarding the state of your financial affairs while we prepare your bankruptcy petition.
Be prepared to answer the questions. Fully.
Why Do I Need to Provide This Information?
A discharge of your obligation to pay your debt is a benefit provided by the U.S. government only to those who are deserving of a Bankruptcy discharge.
That means a debtor who is not filing bankruptcy for the purposes of fraud or for any other reason constituting “bad faith.” In other words, the “honest but unfortunate debtor”.
The Bankruptcy Court will need all of that information to determine whether you are filing in “bad faith.”
It obviously needs to know which creditors you owe money to in order to discharge your debt.
If you’re filing Chapter 7 bankruptcy, your assets are subject to seizure and liquidation unless they are exempted (i.e., protected) in your bankruptcy petition.
In Chapter 7, the income of your entire household will help the Bankruptcy Court determine whether you are eligible for that form of bankruptcy.
In Chapter 13, your household income will determine what your monthly Chapter 13 plan payment will be.
In every form of bankruptcy, in order to determine fraud or bad faith, the Court needs to know what you’ve owned and what transactions you’ve engaged in.
A discharge of your debt is something you request voluntarily.
In return, you agree to open up your books, personally and professionally.
Top 10 Things to Remember to Tell Your Bankruptcy Lawyer
That said, here are some key things to remember to tell your bankruptcy attorney when you first meet.
These items will enable your lawyer to determine whether filing a Chapter 7, Chapter 13, individual Chapter 11, or no bankruptcy at all is your best course of action.
Vehicles or Real Estate with Your Name on the Title or Deed
If your name is on the title or deed to a vehicle or parcel of real estate, it must be disclosed. This is true whether or not you think it is “yours” or not.
For instance, your aged mother may have executed a quitclaim deed for her home from herself as sole owner to both of you, jointly, “just in case something happens.” This is a common scenario.
It is a poor method of estate planning. More importantly, it creates a legal presumption that you own half of the value of the house in a bankruptcy filing. This is so even if your mother paid for the house herself, maintains it, resides in it alone, and pays all property taxes and insurance premiums.
Is there a defense to the allegation you own this home? Yes. But your bankruptcy attorney can’t discuss it or analyze it if you don’t tell him or her about the property to begin with.
Likewise for vehicles. In the Eastern District of Michigan, the defense that “it’s not my car” is even shakier than it is for real estate, given recent local case-law on this subject.
If you have financed a car for someone else and your name is on the title—disclose it to your bankruptcy attorney.
All property owned must be disclosed. Common household items can be presumed at the initial consultation, although you will disclose at least their total value in the longer questionnaire your bankruptcy attorney will provide you after you’ve hired him or her.
Other sorts of goods, especially items of high value, including jewelry, gun collections, art, comic book collections, antiques, fine art, etc., etc., should be disclosed immediately.
Property Transfers, Sales, or Gifts
If you’ve transferred, sold, or gifted any property to another prior to filing the bankruptcy, this should also be disclosed to your bankruptcy attorney.
Does it matter if it was more than a year ago? More than 10 years ago?
Don’t worry about that. Disclose it, and your bankruptcy attorney will tell you if it is or is not a problem.
One of the jobs of the Chapter 7 Trustee is to find and unwind, or “avoid,” transfers of property to family members—including gifts—made by a debtor prior to the bankruptcy’s filing date.
The US Trustee may also move to dismiss a case in which high valued property has been transferred prior to the bankruptcy’s filing.
Once a Chapter 7 in particular is filed, you cannot unwind a transfer yourself and attempt to exempt it. It will be your transferee’s problem at that point.
Is there any possibility that you will inherit money or property within the 6 months after the filing of your bankruptcy case?
If so, you should disclose this to your bankruptcy attorney at your initial consultation.
Any inheritance received within 6 months of the filing date enters the bankruptcy estate and must be exempted or it will be seized by the Chapter 7 Trustee.
A little advance warning to your bankruptcy lawyer will be worth your while, especially if the inheritance is significant.
Recent Debt Repayment
If you’ve recently repaid any debt to anyone whatsoever, tell your bankruptcy lawyer about it.
You may be inclined that repaying that $1,000 you owed to your grandmother a year prior to filing your Chapter 7 bankruptcy case would not be a problem.
You’d be wrong.
No evidence of the debt on paper? Just a cash loan and repayment?
You’re still wrong. Disclose it. Allow your attorney the ability to advise you accordingly before the Chapter 7 Trustee ends up suing your grandmother for recovery of that $1,000 for distribution to your other creditors.
Have you incurred new debt in the last 6 months? In the last 90 days in particular?
Disclose that to your bankruptcy attorney as well.
Any debt incurred in the 90 days prior to the filing of your bankruptcy case is presumed fraudulent and may not be discharged.
The circumstances under which you recently borrowed outside of the 90-day timeframe may still be an indication to the Bankruptcy Court of bad faith.
This disclosure may affect the timing of your bankruptcy filing, if nothing else.
Do you have ownership interest in a corporation, LLC, or other business, either solely or jointly?
Although your personal Chapter 7 or Chapter 13 bankruptcy filing is not the bankruptcy filing of a corporate entity in which you may hold an interest, it is nevertheless, minimally, a potential source of great complexity in your case.
Your interest in the entity is also subject to liquidation as an asset of your bankruptcy estate, depending upon the particulars.
If you have used the business bank account as if it were your personal bank account, moving money back and forth, paying personal expenses from business accounts, and so on, this will be highly problematic for a Chapter 7 bankruptcy in particular.
All documentation related to the entity’s operation, assets, and finances will be subject to turnover to the Chapter 7 and Chapter 13 Trustees and the US Trustee.
Streams of Cash or “Under the Table” Income
All income received in any form must be reported and disclosed and calculated into your Bankruptcy Means Test and your Chapter 13 Plan Payment.
Just because your boss pays you with an envelope rather than check or direct deposit does not mean that it does not exist.
Lawsuits and Garnishments
Are you being sued, served process, or garnished?
This is something you really want your bankruptcy lawyer to know about.
The filing of a bankruptcy stays all collection activity. This includes lawsuits in process, garnishments, the perfection of judgment liens, property seizures, and more.
Once your Chapter 7 or Chapter 13 bankruptcy case is filed, your bankruptcy lawyer will file what is called an Order of Administrative Closing, shutting down any such lawsuit.
To do this, however, your bankruptcy lawyer must know about the lawsuit first.
If you have been garnished a certain sum within a certain time period prior to the filing of the bankruptcy, your bankruptcy attorney may also be able to recover those funds for you.
On the flip side of the coin, you must also disclose the fact that you yourself are suing somebody or are planning—or even simply have the right to sue someone, even if you haven’t taken any steps in that direction.
A claim against another party for recovery of property or money damages is an asset of your bankruptcy estate like any other property you might own.
It must be disclosed in your schedules and exempted, or, in a Chapter 7 in particular, you may lose that right to sue to the Chapter 7, who can do so on your behalf and for the benefit of your creditors.
Finally, be sure to tell your bankruptcy attorney about any regular but unusual household expenses that you may have.
These may be outright strange expenses, or they may be normal expenses in unusual amount.
An example of the latter case would be a monthly average pet/veterinary expense of, say, $1,000 per month. Such an expense is allowable in bankruptcy—but that number will raise red flags.
It may be legitimate because you own 19 dogs. However, it’s going to be a problem for you in bankruptcy.
A “luxury-level” car payment of $600-$1,000 per month or more is another and more common example.
A “strange” or unusual expense might be something like expense private school tuition for your children or, god forbid, a drug habit or gambling addiction.
In bankruptcy, you are not permitted maintain a luxury lifestyle at your creditors’ expense.
Budget line-items of this sort should be discussed with your bankruptcy attorney from the start of your relationship.
Things to Tell Your Bankruptcy Attorney: The Bottom Line
The bottom line with regard to information disclosure in the bankruptcy process is that it is both mandatory and in your own best interest.
If you aren’t sure whether or not you should tell your bankruptcy attorney something—do it.
You’ll be glad that you did, even if the result is that your attorney tells you that should not file for bankruptcy.
Attorney Walter Metzen has guided thousands of clients through the Chapter 7 and Chapter 13 bankruptcy process for over 28 years.
A Board-Certified bankruptcy expert, Attorney Metzen will ensure that you are well-informed and well-represented when dealing with your Chapter 7 bankruptcy Trustee.