The Statement of Current Monthly Income and Your Bankruptcy Plan
In this article, we will discuss a more in depth what is needed to prepare your paperwork for bankruptcy. In addition to the initial filing paperwork there are several more forms we need to submit to the court.
Bankruptcy Form: Statement of Current Monthly Income
The Statement of Current Monthly Income is used by judges to determine if your income level raises the question of abuse of the bankruptcy laws. Part of the responsibility of the judge in a bankruptcy case is to ensure that debtors do not abuse the bankruptcy laws and avoid paying debts by filing bankruptcy when they have the means to pay. Prior to 2005, this determination was made at the discretion of judges. After new bankruptcy laws were passed in 2005, judges are no longer able to use their discretion, but instead follow the formulas outlined in the law to determine if there is abuse. The Statement of Current Monthly Income provides this information to the judge.
If you are filing chapter 7 and are a disabled veteran who incurred most of your debts during active duty, you are able to skip the majority of the Statement of Monthly Income. Likewise if the majority of your debts are not consumer debts you are not required to fill out the much of the form.
The statement is used to calculate your monthly income so that we may compare this to the median income in Arizona. Once we calculate your income, we will look at your family size and use this to compare it to the median income in Arizona for the same size family. If your income is above the median in Arizona you are required to fill out additional portion of the Statement of Current Monthly Income.
In chapter 7 bankruptcy cases, you are also required to file a statement of intent regarding debts that are secured by property. If, for example, you have a car with a loan on it, we must use the statement of intent to indicate to the court what you plan to do with the car. You have several choices. You can indicate that you will 1) keep the property, 2) surrender it, 3) redeem the property, or 4) you will reaffirm the debt.
You must also indicate whether the property will be claimed as exempt. Even though this must be submitted within 30 days after filing your chapter 7 bankruptcy, you are allowed to change your intentions. The statement may be amended at any time before you are required to fulfill your intentions with regard to the secured property.
For the majority of consumer debtors, the statement of intent is easy to fill out. Most of the time, the secured property will be claimed as exempt in the bankruptcy. Very few people will reaffirm the debt or redeem more than one or two secured properties. Reaffirming a debt means that after your bankruptcy you agree that you still owe the debt. Redeeming property means that you agree to pay the creditor the replacement value of the property.
There are times when a creditor will try to get you to reaffirm the debt. If a creditor contacts you to do this, we strongly encourage that you discuss this with us before taking any further steps with the creditor.
Creating the Chapter 13 Plan
One of the most important documents in a chapter 13 bankruptcy filing is your proposed plan. The purpose of the plan is to communicate to the trustee and creditor how you would like to make payments and distributions. You submit the plan and have the right to modify it before confirmation by the court of the plan. If you need to make modifications after confirmation, you can modify the plan under certain circumstances after confirmation with permission from the court.
In creating the plan, you must make sure to provide for full payment of any priority debts. Even if some of these would have been discharged in a chapter 7 case, these must still be paid. Examples of priority debt include child and spousal support, most taxes and criminal fines or restitution. It also includes any money owed to a governmental-type agency. You will also include the administrative expense of the bankruptcy and the attorney’s fees in your plan, if you are making payments. Another requirement of the plan is you must set aside that portion of your future income that is necessary for the plan to be completed.
In confirming your plan, the court will look at whether the plan meets the best interests of the creditors. So in your plan, the court will look at whether or not your unsecured creditors would receive at least as much they would have gotten if you filed chapter 7 bankruptcy. The court will also look at the disposable income you have in your plan and if the trustee or unsecured creditors object to your plan, they can require all disposable income to be directed to paying your unsecured creditors for the 3 to 5 years of your plan.
When we work with you to prepare your plan, we will create a strategy that will deal with the 3 kinds of debt in a chapter 13 bankruptcy: priority, secured, and unsecured debt. We will create a plan that meets your goals, is within your available income, and that is consistent with the bankruptcy laws.
If your income is sufficient for chapter 13 bankruptcy, we submit a plan that meets the requirements for these three types of debt and pays the trustee’s administrative fees. We will then look at any disposable income that is left. If the plan includes disposable income the trustee and your unsecured creditors will likely object unless that income is directed toward paying your unsecured creditors. When we create the plan we do not have to designate what amounts go to each creditor, rather just the preferred order creditors will be paid.
In addition to the Statement of Current Income, and the Statement of Intention for Secured Property, we will also submit a disclosure of fees paid to us as your attorneys. This disclosure allows the trustee and the court to ensure that attorney fees are reasonable. All of these schedules, statements, plan and other documents are required to be filed within 14 days of the original petition we filed for your bankruptcy. If for some reason we need to extend the deadline, we can request an extension prior to the 14-day deadline.
We will go over all the forms together in order to ensure the information is accurate. By signing the forms and statements you are verifying the truth of the information. You are an important part of ensuring the accuracy of the information we are submitting to the court. Once we have submitted all of these forms, your bankruptcy case has officially started.
As your bankruptcy attorneys we will work with diligence and professionalism to ensure that you understand the process. Our experience with thousands of clients filing chapter 7 or chapter 13 bankruptcy means that we have created a process that saves you time and headaches. Our goal is to make sure you feel comfortable with the process and are educated about what the process entails.