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Understanding The Statement Of Financial Affairs In Bankruptcy

Understanding The Statement Of Financial Affairs In Bankruptcy

Introduction

In prior recent blogs, we looked at the “letter” schedules A-J. Now we turn to a few other important schedules that must be filed. When filing for bankruptcy, one of the essential forms you’ll need to complete is the Statement of Financial Affairs. This form provides a comprehensive overview of your financial history and helps the bankruptcy court and creditors understand your financial situation. In this blog post, we’ll explore the purpose of the Statement of Financial Affairs and provide a step-by-step guide to help you navigate this crucial document.

The Purpose of the Statement of Financial Affairs

The Statement of Financial Affairs is designed to disclose relevant financial information to the bankruptcy court, the trustee, and your creditors. It helps establish an accurate picture of your financial affairs, including your income, expenses, assets, liabilities, and recent financial transactions. The form assists in assessing your eligibility for bankruptcy relief and aids in determining the best course of action for your case.

Required Information

The Statement of Financial Affairs requires detailed information about your financial history, typically covering the past two years. Some key areas that you will need to address include:

Income: Provide details about your sources of income, including wages, self-employment earnings, rental income, pensions, and any other form of monetary receipts.
Expenses: List your monthly expenses, such as housing costs, utilities, transportation, groceries, healthcare, and other regular expenditures.
Assets: Disclose all your assets, including real estate, vehicles, bank accounts, investments, retirement accounts, valuable personal property, and any other possessions of value.
Liabilities: Provide information about your debts, loans, credit card balances, mortgages, tax obligations, and any other financial obligations.
Recent Financial Transactions: Report any significant financial activities, such as property transfers, sales, repayments, or payments made to creditors within the specified time frame.

Accurate and Complete Disclosure
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Bankruptcy Schedules: Schedule I

Bankruptcy Schedules: Schedule I

Continuing with our series on bankruptcy schedules, today we look at Schedule I, which is used to provide information about your income. This form provides a variety of purposes in bankruptcy cases – depending on the chapter under which the case was filed. Typically, Schedule I is analyzed in conjunction with Schedule J, which is the schedule related to a debtor’s expenses. But because of the importance of each of these schedules, they will be the subject of separate blogs.

In a chapter 7 case, Schedule I helps the bankruptcy trustee determine your ability to repay your debts. In order to qualify as a chapter 7 debtor, most debtors must have income in an amount less than the mean income for similarly situated people (i.e., those with the same number of dependents) in the area in which they live. If a debtor’s income is less than the mean, then there is no presumption of abuse, and that debtor can proceed under chapter 7. If a debtor has income above the mean, then a second level of analysis looks more closely at the types of debts that the debtor has, and based on that analysis, it may be found that there is no presumption of abuse despite the slightly higher income. Finally, if the debtor has above-mean income and cannot satisfy the 2nd level of analysis, then a presumption of abuse arises that the debtor has not filed chapter 7 in good faith. This is a rebuttable presumption that a debtor would have to rebut with evidence explaining to the bankruptcy court why, despite the above-mean income, that the case is not an abuse. Certain exceptions to the Means Test exist, such as a situation where the majority of the debtor’s debts are considered business debts. Ultimately, if a debtor is unable to overcome the presumption of abuse, then the only bankruptcy option is to instead file for chapter 13, which involves at least some payment to the debtor’s creditors.

In a Chapter 13 case, Schedule I, in conjunction with Schedule J (related to a debtor’s expenses) is used to determine how much a debtor is able to pay under a chapter 13 repayment plan. Ultimately, in order to be able to confirm a chapter 13 plan, a debtor must be able to pay at least the amount of their “disposable income,” as determined by schedules I and J. As a result, Schedule I takes on additional importance in a chapter 13 case.

Step 1: Gather Information About Your Income
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Bankruptcy Schedules: Schedule H

Bankruptcy Schedules: Schedule H

Continuing our look at Bankruptcy Schedules, today we turn to Schedule H, which is used to list all of your co-debtors. A co-debtor is someone who is jointly liable with you on a debt. For example, if you and your spouse have a joint credit card, your spouse would be considered a co-debtor. Similarly, if you are a guarantor on a debt of your business, then if you are filing personal bankruptcy, you would need to list your business as a co-debtor. Alternatively, if you are filing bankruptcy on behalf of your business, then you would need to be listed individually as a co-debtor in your business’s bankruptcy filing.

Keep in mind that your spouse is not automatically a co-debtor simply because you’re married or simply because you live in a community property state. Generally, a spouse would have to have personally signed on a loan document to be jointly liable. If you’re not sure, then you should check your loan documents.

Step 1: Gather Information About Your Co-Debtors

Before you can start filling out Schedule H, you’ll need to gather information about all of your co-debtors. This may include your spouse, family members, business partners, or anyone else who is jointly liable for a debt with you. Make sure to gather all relevant documentation, including billing statements and any other documents related to your co-debtors.

Step 2: List Your Co-Debtors
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Bankruptcy Schedules: Schedule G

Bankruptcy Schedules: Schedule G

Continuing with our series on bankruptcy schedules, today we look at Schedule G, which is used to list all of your executory contracts and unexpired leases. An executory contract is a contract in which both parties still have performance obligations to fulfill. A complete analysis of executory contracts is beyond the scope of this blog, as there is an entire body of law on what is and what is not an executory contract. An unexpired lease is a lease that has not yet expired.

Step 1: Gather Information About Your Contracts and Leases

Before you can start filling out Schedule G, you’ll need to gather information about all of your executory contracts and unexpired leases. This may include contracts for goods or services, such as a cell phone or gym membership, as well as leases for a home or car. Make sure to gather all relevant documentation, including copies of your contracts and leases.

Step 2: List Your Contracts and Leases

Once you have all of the necessary information, you or your attorney can start listing your executory contracts and unexpired leases on Schedule G. For each contract or lease, you’ll need to provide the following information:
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Bankruptcy Schedules: Schedule F

Bankruptcy Schedules: Schedule F

Continuing our series on bankruptcy schedules, Schedule F is used to list all of your general unsecured debts. General unsecured debts are those that are not secured by collateral and are not entitled to priority payment under the Bankruptcy Code. These debts are typically credit card debts, medical bills, and other similar debts. You may recall that, in our last blog – focused on Schedule E – we noticed that Schedules E and F have been combined into one schedules – cleverly labeled “Schedule E/F”. However, we also noted that, for purposes of discussion, we were breaking out the detail of Schedule E versus Schedule F.

Step 1: Gather Information About Your General Unsecured Debts

Before you can start filling out Schedule F, you’ll need to gather information about all of your general unsecured debts. This may include credit card debts, medical bills, and other debts that are not secured by collateral. Lesser known unsecured debts include deficiencies on repossessed vehicles and personal guarantees on business loans. Student loans are also unsecured debts, but they are treated separately under the Bankruptcy Code and are not generally not dischargeable under §523(a)(8) of the Bankruptcy Code. An exception is provided if excepting student loans from discharge would impose an “undue hardship” – an extremely high burden that has historically only been satisfied when a debtor is unlikely to be able to work for a living in the future.

Make sure to gather all relevant documentation, including the most recent billing statements and any other documents related to your general unsecured debts. If you believe that you may have an “undue hardship” as a result of student loans, talk to your attorney about the possibility of seeking a hardship discharge. In some cases, student loan companies may be willing to negotiate these debts based on demonstrated hardship situations.

Step 2: List Your General Unsecured Debts

Once you have all of the necessary information, you or your attorney can start listing your general unsecured debts on Schedule F. For each general unsecured debt, you’ll need to provide the following information:

-Creditor’s name and address: This is the name and address of the creditor who holds the general unsecured debt.
-Date incurred: This is the date that the general unsecured debt was incurred.
-Amount of claim: This is the amount that you owe on the general unsecured debt as of the date that you filed for bankruptcy.
-Be sure to list each general unsecured debt separately, even if you have multiple debts with the same creditor.

Step 3: Complete the Form

Once you’ve listed all of your general unsecured debts on Schedule F, you or your attorney must complete the rest of the form. This includes providing your name, case number, and other basic information, as well as signing the form to certify that the information you’ve provided is true and accurate.

Step 4: Review and File

After you’ve completed Schedule F, review it carefully to make sure everything is accurate and complete. Keep in mind that a trustee will be reviewing these forms and may ask you questions about them at the meeting of creditors. Once you’re satisfied with the form, you or your attorney will file it with the bankruptcy court, along with the rest of your bankruptcy paperwork.

As with other schedules, completing Schedule F is an important part of the bankruptcy process. By following these steps and seeking the guidance of a bankruptcy attorney if needed, you can ensure that your general unsecured debts are accurately listed, and that your bankruptcy case proceeds smoothly.

Resources

Copy of Schedule F Form
Download Schedule F Form

Have a question? Contact Greg Mitchell, Freeman Law, Texas.

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Bankruptcy Schedules: Schedule D

Bankruptcy Schedules: Schedule D

Continuing on with our series on Bankruptcy Schedules, today we’ll look at Schedule D, which is used to list all of the secured debts that you owe as of the date that you filed for bankruptcy. Secured debts are those that are secured by collateral, such as a car loan or a mortgage. By completing Schedule D, you will provide the court and your creditors with a detailed list of all the debts you owe that are secured by collateral. As a general matter, secured debts will not be discharged in a bankruptcy case. Therefore, if you intend to keep the property that serves as the collateral for a loan, then you’ll need to plan to continue to make payments on that debt after bankruptcy.

Step 1: Gather Information About Your Secured Debts

Before you can start filling out Schedule D, you’ll need to gather information about all of your secured debts. This may include car loans, mortgages, and other loans that are secured by collateral. Make sure to gather all relevant documentation, including loan agreements, billing statements, and any other documents related to your secured debts.

Step 2: List Your Secured Debts

Once you have all of the necessary information, you can start listing your secured debts on Schedule D. For each secured debt, you’ll need to provide the following information:
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Bankruptcy Schedules: Schedule C

Bankruptcy Schedules: Schedule C

This will continue our series on bankruptcy schedules. In a prior blog post, we looked at Schedule A/B. Today, our focus will be on Schedule C related to the claiming of exemptions.

In a bankruptcy case, Schedule C is an important form that allows debtors to claim exemptions for certain property. Exemptions are legal provisions that allow debtors to protect certain assets from being seized and sold by the bankruptcy trustee to pay off creditors. In this blog post, we’ll go over the basics of completing Schedule C in a bankruptcy case.

Step 1: Understand Your State’s Exemptions

Before you can start filling out Schedule C, you need to understand the exemptions that are available to you in your state. Each state has its own set of exemptions, and some states allow debtors to choose between state and federal exemptions. Make sure to consult with a bankruptcy attorney to understand your state’s exemptions and which ones may be applicable to your case.

Step 2: Identify Property to Claim as Exempt

Once you’ve identified the exemptions available to you, the next step is to identify the property that you want to claim as exempt. This can include things like your home, car, personal property, and other assets that are protected by state or federal exemptions. This includes things like protected accounts like IRAs and 401(k), along with a variety of other items that varies by state.
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Bankruptcy Schedules: Schedule A/B

Bankruptcy Schedules: Schedule A/B

This will be the first in a series of blog posts that will focus on completing bankruptcy schedules. We’ll start in this blog with the first schedule – Schedule A/B.

Bankruptcy can be a complex and overwhelming process, but it’s important to accurately complete the required forms and schedules to ensure that your case proceeds smoothly. One of the key schedules that must be completed is Schedule A/B, which lists all of the debtor’s personal property and assets. In this blog post, we’ll go over the basics of completing Schedule A/B in a bankruptcy case.

Step 1: Gather Information

Before you can start filling out Schedule A/B, you’ll need to gather all the necessary information about your personal property and assets. This can include things like your home, car, furniture, electronics, jewelry, and other items of value. Make sure to be thorough in your inventory, and don’t leave anything out.

Step 2: Determine the Value of Your Property

Once you’ve compiled a list of all your personal property and assets, the next step is to determine the value of each item. The value should be based on the fair market value, which is the price that a willing buyer would pay to a willing seller in an arm’s length transaction.

There are several ways to determine the value of your property. You can use online resources like Zillow or Redfin to estimate the value of your home, or use sites like Kelley Blue Book or NADA to estimate the value of your car. For other items like jewelry or electronics, you may need to get an appraisal from a qualified appraiser.

Step 3: Classify Your Property
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Written by | Posted in Bankruptcy And Taxes • Freeman Law

Schedule F Farming Expense Deductions And Deficiencies Relating To Same (Share This Article)

Schedule F Farming Expense Deductions And Deficiencies Relating To Same

Hoakison v. Comm’r, T.C. Memo. 2022-117| December 5, 2022 | Paris, J. | Dkt. No. 16577-17 

Short Summary:  Mr. and Mrs. Hoakison (collectively, the “Hoakisons”) are long-time farmers.  They own real estate used for farming and utilize various equipment to assist with their farming operations, including tractors and pickup trucks.  In 2012, the Hoakisons also constructed a machine shed for a cost of $108,856, which was paid in cash.

The Hoakisons are not tax professionals and do not have advanced educations.  Accordingly, for their 2013, 2014, and 2015 tax years, they relied on Mr. Powell, a farm management specialist with a master’s degree in agricultural education, to prepare their returns on their behalf.

The IRS selected the Hoakisons’ 2013, 2014, and 2015 tax returns for examination.  The IRS disallowed many of the Schedule F, Profit or Loss from Farming (“Schedule F”), deductions they claimed related to their farming activities.  The IRS also imposed accuracy-related penalties regarding the disallowed deductions and related underpayment of tax for 2013, 2014, and 2015.

Key Issues: 

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Obtaining Extension To Make §754 Election

Obtaining Extension To Make §754 Election

Private Letter Ruling 202244002, November 4, 2022

In a recent Private Letter Ruling, the Internal Revenue Service granted a partnership 120 days from the date of the letter to make an election under §754 of the Internal Revenue Code based on a finding that it acted reasonably and in good faith, and that granting relief would not prejudice the government’s interests.

The requesting partnership intended to make a §754 election for its most recent taxable year. However, the partnership failed to timely file such election with its partnership return for the taxable year.

Section 754 provides, in part, that if a partnership files an election, in accordance with the regulations prescribed by the Secretary, the basis of partnership property is adjusted in the case of a distribution of property, in the manner provided in  § 734, and, in the case of a transfer of a partnership interest, in the manner provided in  § 743. Such an election applies with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable year with respect to which the election was filed and all subsequent taxable years.

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How Will The Courts Rule On This Foreign Based Sales Company Income Case?

How Will Courts Rule On Foreign Base Sales Income Case?

Whirlpool Petition For Cert

In a brief filed on October 19, 2022, the IRS asked the U.S. Supreme Court to refuse to review the decision of the Sixth Circuit affirming, in a 2-1 split decision, that $45 million earned by appliance maker Whirlpool’s controlled foreign corporation (“CFC”) in Luxembourg was foreign base company sales income taxable under Subpart F of the Internal Revenue Code.

Whirlpool’s parent company maintains that income from its Luxembourg affiliate’s sales of appliances to its Mexican subsidiary cannot be taxed under Subpart F because it was generated by two foreign affiliates manufacturing different products.  However, the IRS contends that the transactions fall within the I.R.C. §954(d) definition of foreign base company sales income (“FBCSI”) earned by a U.S. parent’s CFC and are therefore taxable under Subpart F.
Facts

Through its domestic and foreign subsidiaries, Whirlpool engages in the manufacture and distribution of major household appliances, including refrigerators and washing machines, in the United States and abroad. Whirlpool International Holdings, S.a.r.l. (“WIH”),  is a wholly owned subsidiary of Whirlpool organized under the laws of Luxembourg. When it filed its petition, WIH had its principal place of business in Luxembourg. Before December 31, 2010, WIH was known as Maytag Corp. (Maytag) and was likewise engaged in the manufacture and distribution of household appliances.

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You Received An IRS CP504 Notice, Now What?

You Received An IRS CP504 Notice, Now What?

The IRS sends a CP504 Notice when a taxpayer has failed to pay a balance owed.  The CP504 Notice is a Notice of Intent to Levy issued pursuant to Section 6331(d) of the Internal Revenue Code.  If a taxpayer fails to make payments immediately or otherwise address the Notice, the IRS can proceed with a levy on a taxpayer’s income and bank accounts, as well seize a taxpayer’s property or rights to property to satisfy the outstanding balance.

Under §6331(d), the CP504 Notice must be provided to a taxpayer at least 30 days prior to taking action against a taxpayer’s property (unless the IRS has made a finding that the collection of that tax is in jeopardy as described in §6331(a)).

As described in §6331(d)(4), the CP504 Notice must contain certain information, including:

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