- Schedule D: Secured Creditors
- Schedule E/F: Unsecured Debts
- Schedule G: Executory Contracts and Unexpired Leases
- Schedule H: Co-Debtors
- Schedule I: Income
- Schedule J: Monthly Household Expenses
- Reading and Reviewing Your Bankruptcy Petition, Part 2: The Bottom Line
Reviewing the bankruptcy petition and documents that your Michigan bankruptcy attorney prepares for filing with the US Bankruptcy Court is among your most important tasks within your own Chapter 7 or Chapter 13 process. It is only second in importance to gathering the documentation used to draft the petition in the first place.
What are the costs of failing to property review and correct, where needed, your bankruptcy petition, Schedules, Statement of Financial Affairs, Means Test, and other documents?
You will not have a good, honest (and easy) answer when your Trustee asks you, on the record, at your 341 Meeting of Creditors whether you have disclosed everything you own and everything you owe and whether you have reviewed your petition and documents prior to filing.
Further, you will be in danger of accidentally failing to disclose or of undervaluing assets or misstating or failing to disclose income sources, all of which will expose you to an accusation of Bankruptcy Fraud. (Bankruptcy Fraud is a Federal felony carrying a 5-year prison sentence.)
You get the picture.
In Part 1 of this Article, we described the points you should focus upon when reviewing the first portion of your draft documents: the Voluntary Petition for Bankruptcy itself, Certificate of Bankruptcy Credit Counseling, Summary of Assets and Liabilities, and Schedules A/B, and C.
In this part, we will focus upon the remaining Schedules.
Let’s get started.
Schedule D: Secured Creditors
Schedule D is where all of your “secured” creditors should be listed, with all required details of the debt—and securing collateral—adequately and accurately described.
To recap, a secured debt is a debt owed because you borrowed money and offered some property or cash as collateral, securing your obligation to pay. If you don’t pay, the creditor may take ownership of that collateral property.
The most typical secured debts that the average person in Chapter 7 or Chapter 13 bankruptcy in Michigan will owe are home mortgage and vehicle loan obligations. However, you may have others—or you may have none at all, if you rent your home or lease your vehicle.
If you do owe one of these types of debt, you should review Schedule D carefully. Each entry in this Schedule is, again, broken into sub-sections and columns.
Creditor’s Mailing Address
The creditor’s mailing address is the first item to check, but be warned: the bankruptcy “notice” address used by your lawyer may differ from the P.O. Box or other address to which you may normally mail a check every month (yes, people still send paper checks).
If you have a question about the address featured here, ask your lawyer. But understand that bankruptcy attorneys keep proper bankruptcy notice addresses for major creditors on file as many creditors do maintain separate addresses for this purpose.
Who Owes the Debt?
You will next verify that the proper box disclosing who owes the debt (just you or you and somebody else) is checked. If you owe the debt with someone else, that person’s name and address should be also listed on Schedule H (Co-Debtors).
And, yes, that person must be listed. Co-Debtors are legally entitled to be notified when they are about to be fully liable for a debt that they thought you would be paying.
What Property Secures the Debt?
You will next verify that the description of the property pledged as collateral is accurate (home address or year/make/model of car—both of which should be on Schedules A/B, by the way—or whatever the case may be).
A great deal of information is not required in this little box. The property simply needs to be identified. The Trustee or creditor or other party later reviewing it can cross-reference with the more detailed description of that property elsewhere in the petition.
Below that collateral description, you will verify the accuracy of the checked boxes describing whether or not the debt is “contingent” (dependent upon some future event occurring, such as the winning of a lawsuit), “unliquidated” (unknown amount owed), or “disputed” (you disagree that you owe the debt).
You will also verify that the correct “Nature of Lien” box is checked: Is the loan an “on purpose” obligation that you entered into willfully, such as a mortgage? Or is a tax or judgement lien?
Finally, Schedule A lists, in 3 columns, the amount of the debt owed, the value of the property securing it as collateral, and the difference (“unsecured value”) if any.
That “unsecured value” difference would be the value of the debt above the value of the property securing it. For example, if the home securing your $70,000 mortgage balance is only worth $50,000, the Column C “unsecured portion” is $20,000.
This makes a big difference in Chapter 13, in particular, though this will not be further discussed in this Article.
Just make sure that these values are correct.
Schedule E/F: Unsecured Debts
Schedule E/F (again, formerly two separate Schedules) is where everyone else to whom you owe money should be listed. That is, this Schedule contains all of your unsecured debts.
Unsecured debts are, of course, the debts against the payment of which you have pledged no property as collateral. You just owe the money by way of contract, court judgment, or some other “paper-related” means.
Priority vs. Non-Priority Unsecured Debts
The first page or two is the “Schedule E” portion. This section exists to separate your “priority” unsecured debts from the following Schedule F “non-priority” debts.
What’s the difference? Only that the Bankruptcy Code (the Federal law governing the bankruptcy process) has listed one as “priority” versus others. In a Chapter 13 bankruptcy payment plan, priority unsecured debts are paid by the Chapter 13 Trustee ahead of non-priority unsecured debts. (They must all be paid in full, whereas this is not the case with non-priority unsecured debt.)
In a Chapter 7 bankruptcy, priority debts will be paid first by the Chapter 7 Trustee if he or she liquidates any of your property.
Your bankruptcy lawyer knows the difference and which ones are listed as priority by the Bankruptcy Code (child support and spousal support being two key examples).
Your first job when reviewing Schedule E/F (and especially the Schedule E portion) of this schedule is to ensure that you have not forgotten to tell your lawyer about any debt whatsoever, particularly support obligations, tax debts, wages owed to former employees (even your babysitter!), or anyone else.
If your lawyer has inserted one of those debts that you owe in the Schedule E part, feel free to ask why if you’re not sure. Otherwise, you must simply ensure the accuracy of the information provided.
What To Look For
Is the creditor’s name and address accurate? (Remembering that many commercial creditors use specific bankruptcy “notice” addresses.)
Important Note: If the creditor is a priority support recipient, the address listed should be the actual physical address of the recipient, not Friend of the Court or other.
You must also ensure that the amount owed is accurate to-date (the filing date of the petition). If only part of a debt on the Schedule E section is priority, break it down using the “Total claim,” “Priority amount,” and “Nonpriority amount” columns provided.
Again, as on Schedule D, you will check boxes to disclose whether you owe the debt individually, jointly with another, whether you dispute the debt or it is contingent, and what type of priority claim it is, if priority.
Check that the last 4 digits of the account number are accurate as listed.
Finally, also ensure that the date you incurred the debt is accurate. For a credit card, this would be the day you opened the line of credit. For a child support or spousal support obligation, this would be the date that the support order was entered by the state court issuing it. For a tax debt, this will be April 15th (usually) of the year following the tax year from which the debt arose.
For the Schedule F section of this Schedule, you’ll just list a total amount owed rather than dealing with 3 columns separating priority from non-priority—but make sure it’s accurate. This is especially important in a Chapter 13 bankruptcy proceeding.
Schedule G: Executory Contracts and Unexpired Leases
This Schedule is usually no more than 1 or 2 pages long. It lists all leases and contracts to which you are party.
The most common sort of lease that will appear here in a consumer bankruptcy case is a vehicle lease or a residential rental lease. Storage unit leases are all also frequent Schedule G flyers.
As with Schedule E/F, your job is simply to ensure that the information here, if any, is correct. But all you will be verifying is that:
- No lease or contract obligation is missing;
- The creditor’s name and address (check with your lawyer) are correct;
- And that the explanation of what the contract is for (e.g., “2018 Kia Optima”) is also correct.
Schedule H: Co-Debtors
If you co-signed for anyone else’s debt, they co-signed for yours, or your jointly incurred debt with anyone else whether or not that person or business is jointly filing your bankruptcy case with you, that person’s name and address should appear on Schedule H.
The first question here simply asks whether you have any co-debtors at all. If the answer is, “No,” you’ll only next be required to disclose whether you have lived in a community property state within the last 8 years.
Michigan is not a community property state. However, other states are. If you’ve lived in California, Arizona, or, really, any other state, ask you bankruptcy lawyer if this is the case and you aren’t sure.
Otherwise, if not, you’re done with Schedule H.
However, if you do have co-debtors, the name and address of each should be verified as accurate here, with the correct box checked directing readers to the Schedule (D or E/F or G) on which the shared debt obligation is listed.
Schedule I: Income
Schedule I requires the disclosure of the income earned, gross and net, by both yourself and your spouse, if you have one. This requirement includes a spouse who is not filing your bankruptcy along with you.
The Schedule is divided into 2 separate columns for this purpose: a “Debtor 1” column (that’s you) and a “Debtor 2 or non-filing spouse” column.
Line 2 of each column requires disclosure of your monthly average gross wages, salary, and commissions. “Gross” means the pre-deduction amount, before your 401(k), insurance, union dues, or any other paycheck deduction are removed from the total.
From there, all of those deductions disclosed, subtracting from that average monthly total, until you reach the final “net” income figure at the bottom, in Line 12. (The Line 12 final result combines the income from both columns.)
Finally, in Line 13, you must disclose any expected increase or decrease in these figures in the next year—even if you aren’t sure you the change will actually occur or in what final amount (e.g., you may get a raise in some amount if your company is profitable enough).
Note that Line 9 requires that you additionally include other income received, such as the $500 you earn every month babysitting or cutting your neighbors’ lawns. Even if it is “cash under the table,” it must be disclosed here.
Note: If you are earning “cash under the table” income and are not reporting on your tax return, you are committing tax fraud. Discuss with your bankruptcy attorney if this is the case. “Forgetting” to disclose that income here because you also did not “remember” to disclose in your tax return last year is not optional.
What Is “Average Monthly Income?”
A final note regarding the averaging of income for Schedule I purposes is warranted here.
Your bankruptcy lawyer and his or her handy bankruptcy petition software program will assist with this. But, yes, the gross income disclosed and all deductions removed from that income are averages of your annual income.
Thus, for example, if you receive a bi-weekly paycheck, you are paid every other week regardless of how many weeks there are in a given month. Generally, this means you receive 2 paychecks per month 10 months of the year and 3 paychecks in the other 2 months.
The average amount is not “paycheck amount x 2,” although many bankruptcy clients presume this to be the case. It is actually paycheck amount x 26 (pay periods) divided by 12 (months). Thus, if you earn $1,000 per paycheck (gross) and are paid bi-weekly, the top line of Schedule I would not read “$2,000.00” but, instead, “$2,166.66.”
The math will differ, therefore, if you are paid monthly, semi-annually, or bi-weekly. If you receive sporadic commissions, bonuses, dividends, other irregular income (especially if you are self-employed), this is trickier and one of the reasons why you need to hire a good bankruptcy lawyer to assist you and provide thorough and accurate income records to your lawyer so that Schedule I can be prepared properly and expertly.
That all said, and with that understanding: check the math here. Make sure it’s correct. Make sure no income stream is absent.
Schedule J: Monthly Household Expenses
Schedule J is the last of the Schedules you will need to review. Its purpose is to account for all of the necessary household expenses that, as a unit, your household incurs each month.
Your bankruptcy attorney will already have provided you with a questionnaire, usually, for the purpose of the listing and calculation of these expenses.
As with the income average described above, each expense line-item captured here is an average of an annual expense. That is, even if you don’t expend funds on a particular expense every, single month with regularity and in regular amount, it should still be averaged and disclosed here if it is “necessary.”
For example, a rent payment is a regular, static monthly expense. Easy. Is your rent payment listed? If so, is it the correct amount?
For such expenses, just take the tip of a pencil or pen and proceed downward through Schedule J, examining each line-item carefully for a accuracy.
Other expenses may not be so obvious. The clothing expense is a good example. It is common for single men without children to blithely assert, “Oh, I don’t spend money on clothing” to their attorneys. However, they did not show up for the appointment totally naked (hopefully). Yes, even single dudes spend money on clothes. Maybe not every month. Maybe not in the same amount, always. But clothes are necessary, certainly.
For these sorts of “irregular” expenses, consider how much your family as a whole spends on clothing over a given year and then divide that amount by 12 (months) to arrive at a number. If you only buy Coach or Prada or other high-end products, discuss the final total amount with your lawyer before signing off.
Necessary—and Reasonable Expenses Only
The Bankruptcy system does not contemplate allowing you to discharge your debt obligations so that you can buy $5,000 shoes. Expenses must be “reasonable” in addition to being “necessary.”
That said, what is and is not a “necessary” expense is a discussion outside of the scope of this Article. Discuss individual expenses regularly incurred with your bankruptcy attorney now if you have not already.
To provide one example, however, if you spend money every month on Pokemon cards or some other hobby, it is likely not “necessary” from a legal standpoint. Just because you like to spend money on something doesn’t mean that your family can’t survive without it.
Non-Filing Spousal Marital Deductions
If your spouse is a “non-filing spouse,” you will want to be sure to capture your spouse’s own “marital deduction” expenses. That is, everything your spouse spends money on (that is necessary) from his or her own wages that do not fall into one of the pre-printed line-item categories, such as food or utilities.
Your non-filing spouse’s credit card debt payments will not be discharged by your bankruptcy, for example. These should not be forgotten. Your non-filing spouse’s business expenses, medical expenses, car payment, and many others can and should be deducted from your Schedule J household total.
In a Chapter 13 bankruptcy, the final household “net” income result is the amount of your monthly Chapter 13 plan payment. If your non-filing spouse is paying $500 per month for his or her own credit card payment, that money really isn’t there to be remitted to the Chapter 13 Trustee at all. It should not be left on the table.
Discuss specific marital deductions with your bankruptcy attorney if you see that any are not accounted for here.
Declaration About an Individual Debtor’s Schedules
This one-pager caps off the petition Schedules. If everything looks good, sign and date here as directed by your attorney.
Make sure your lawyer is aware of any changes that need to be made in every page discussed above, and in Part 1 of this series of Articles, before signing off.
Reading and Reviewing Your Bankruptcy Petition, Part 2: The Bottom Line
For now, your most important take-away should be that the quality of information you find to review on your petition Schedules is highly dependent upon the quality of information and documentation that you provide to your attorney in the first place.
Further, it should be apparent from reading this series of Articles that your petition, even with good documentation and information on hand, will be best produced by a bankruptcy attorney with years of knowledge regarding acceptable expenses, income disclosure, asset valuation, exemption application, and the other items discussed so far.
You can read internet blog posts all day long, and you still won’t know anything about how your particular local Detroit-area Trustees and Judges consider these issues. Your lawyer does know. Make sure you have one.
Attorney Walter Metzen is a Board Certified Bankruptcy Expert who has successfully represented Metro Detroit Chapter 7 and Chapter 13 bankruptcy clients for over 30 years.
If you are considering filing for bankruptcy, contact us now to schedule your free initial consultation.