Bankruptcy

Bankruptcy Documents: ?Turn the Page?

By Russell A. DeMott, Charleston Bankruptcy Lawyer

A big part of filing bankruptcy is providing your bankruptcy lawyer with documents.  After you and your bankruptcy lawyer decide bankruptcy is your best option, she’ll give you a list of documents she’ll need in order to file your case.

At first, the list may seem intimidating, but it’s really not that bad.  To be sure, this will be more work than applying for a mortgage, but it’ll help if you keep the big picture in mind.  Remember, you’ll get more out of the bankruptcy system than you lawyer, your trustee, or the judge assigned to your case.

Pay stubs

The thing that slows clients down the most is supplying their lawyer with six months of pay stubs.  The Bankruptcy Code calls these “payment advices.”  For example if you file bankruptcy at the end of this month (July, 2010), you’ll need to supply your bankruptcy lawyer with pay stubs from January 1st through June 30th.

With those stubs, she’ll calculate your “current monthly income” (referred to as “CMI“).  Note that I put current monthly income in quotes.  That’s because we’re really not talking about your current monthly income in any real sense.  CMI is a defined term. It would be more accurate calling CMI your “six-month average” or your “flux capacitor quotient.”  Anything other than “current monthly income” would be more accurate.  We all know that if we take our six-month income average, that could be substantially higher or lower than what you earn right now–currently.  For example, maybe you lost good job three months ago, or maybe you got a good job right before you were scheduled to file your bankruptcy case.

Nevertheless, the Bankruptcy Code is fixated on this meaningless statistic.  So you’ve got a new hobby: collecting pay stubs.  If you don’t keep your pay stubs, that’s no big deal.  Go to your payroll department and ask for a printout.

The 60-days

Unless your district has opted out of this requirement, you’ll also have to provide your lawyer pay stubs for the entire sixty days before your file bankruptcy.  Your lawyer will then file those pay stubs with your case.  “But you’d have them if you have the six-months of pay stubs,” you say.  Not exactly.  If, in our example, you file bankruptcy on July 30th of this year, your CMI would be calculated from January through June.  However, under the 60-day rule, you’d also need to get your bankruptcy lawyer your pay stubs for the month of July, even though CMI reflect your July wages.

But I’m Self-Employed

If you’re self employed, you’ll need to generate profit and loss statements for each of the six CMI months.  If you have accounting software–like Quickbooks or Peachtree–this will be a breeze.  And if not, just keep it simple: money in and money out.  If you took in $4000 in gross receipts for January, and you have $2,000 of expenses, you earned $2,000 for that month.  If you need help compiling this information, I strongly recommend you contact your accountant.  I always prefer having a client use his accountant to compile this information so it’s as accurate as possible.

But I’m Retired and Only Get My Pension and Social Security

That’s fine, too.  Just give your bankruptcy lawyer your benefits statements.

Tax Return(s)

You’ll also need to provide your bankruptcy lawyer with the last federal income tax return you were required to file.  Many trustees also request more than one year, as well as your state returns.  Your lawyer knows what you need, so follow his directions.

Other Documents

• Bank statements. You’ll probably need a few months worth of bank statements as well.  Again, this just depends if you’re in Kalamazoo or Kissimmee.
• Retirement plan statements.  In almost all cases, your retirement plans cannot be reached by the bankruptcy trustee.  Still, you’ll need to know how much is in those accounts (IRAs, 401(k)s, etc.) so your bankruptcy lawyer can accurately fill out your schedules.
• Recorded copies or your deed(s) and mortgage(s).  Most lawyers, myself included, will want to see these documents.  Keep in mind, your lawyer is not asking for the unsigned copies you received at closing.  She wants copies of what was filed with the register of deeds.
• Cash value insurance statements.  If you’ve got cash value insurance, your lawyer will need your most recent statement.
• Your divorce judgment or, as we call them here South Carolina, divorce decree, along with your property settlement agreement if you’ve entered into one in conjunction with your divorce. (Most lawyers will only need these documents if you were divorced in the last year or two or in special circumstances.)
• Tax assessments on your real estate. This shows what the tax assessor thinks your property is worth.  Your lawyer and trustee will use this as a rough guide on value.  Usually, property isn’t worth less than what its assessment shows.
• Charitable giving statements.  If you claim charitable giving expenses, you’ll need to provide proof of those expenses.  If the amount is fairly low, say $50 or less per month, you may not be asked for this information.  This will be more of an issue in a Chapter 13 bankruptcy–a repayment plan–than in a Chapter 7 bankruptcy.

While compiling these documents might seem like a big job, in most cases, it’s not.  Don’t panic! Just work on this a little each day, and in a few days you’ll have all the required documents. Just turn the page and move on to the next document. Remember, you’ll get more out of bankruptcy than anyone else.

Full post as published by Bankruptcy Law Network on July 04, 2010 (boomark / email).