Chapter III Filing a Bankruptcy Case

• Jurisdiction: United States

III. Filing a Bankruptcy Case

A. Petition and Filing Fee

A bankruptcy case is commenced by the filing of a bankruptcy petition.²⁰² Most, if not all, districts now require bankruptcy petitions to be filed electronically, although some districts permit pro se debtors to file a petition traditionally. As with any document filed with the court, the debtor and counsel should exercise care in completing the form so that it provides all required information and is accurate. The following is also required:

1. Master Creditor Matrix/Mailing Matrix

The petition must be accompanied by a mailing list of all entities listed on Schedules D, E/F, G and H.²⁰³ The mailing matrix contains all of the debtor's creditors, as well as other parties the debtor wishes to notify of the bankruptcy, such as counsel for a creditor, a collection agency or a creditor's alternative address for noticing.

2. Filing Fee

The petition must be accompanied by the correct filing fee.

a. Payment in Installments

If an individual debtor is unable to pay the filing fee in a lump sum, the debtor may apply for leave to pay the fee in install-ments.²⁰⁴

b. Waiver

The court may waive the filing fee for a chapter 7 petitioner if the debtor's income is less than 150 percent of the official poverty line (as defined by the Office of Management and Budget) applicable to the debtor's family size, and is unable to pay that fee in installments.²⁰⁵

B. Schedules and Statement of Financial Affairs

The debtor is required to file the schedules, statements and other documents required by the Bankruptcy Rules with the petition or within 14 days thereafter.²⁰⁶ If not filed within 15 days, the case may be dismissed upon motion of the U.S. Trustee;²⁰⁷ if not filed within 45 days, the case is automatically dismissed.²⁰⁸ Deliberate failure to disclose all required information may result in a denial of discharge, criminal prosecution or both.

Moreover, although the Bankruptcy Code provides that property not otherwise administered is abandoned to the debtor at the conclusion of the case,²⁰⁹ the property must have been properly scheduled. Notwithstanding a general or technical abandonment under 11 U.S.C. § 554(c), unscheduled property remains property of the estate in custodia legis, and the case can be reopened at any time to administer it.

1. General

a. Property Descriptions

The description of property must be sufficiently detailed to permit a reader to identify the property and its probable value.

b. Property Values

Value is the replacement value of the property as of the date of the petition.²¹⁰ Therefore, the condition of the item is relevant to the valuation. Even if the debtor believes the property has no value, it must be scheduled.

i. Real property. If there has not been a recent appraisal of real property, the current assessed value by the local tax assessor might be a good starting place to determine value. While it is not necessary to obtain an appraisal, a debtor is required to make a good-faith effort to estimate accurately the fair market value of the property.
ii. Personal property. The value of personal property securing an allowed claim is its replacement value as of the date of the filing of the petition. For property acquired for personal, family or household purposes, replacement value is the price a retail merchant would charge for similar property considering its age and condition.²¹¹ Costs of marketing and sale are not precluded under this definition. A reasonable guideline for other personal property value is what a person in the debtor's position would pay for the property taking into consideration its age and condition.

c. Debts and Claims

The debtor must schedule all debts to ensure that all dischargeable debts will be included in the discharged.²¹² All account numbers should be redacted to the last four digits.²¹³ In many jurisdictions, if a chapter 7 case is a no-asset case, otherwise-dischargeable debts that are inadvertently omitted, e.g., if the debtor does not remember or have any record of the debt, will nevertheless be discharged.²¹⁴ Debts whose validity or existence is in doubt should also be scheduled. Bankruptcy software packages used by many practitioners allow the debtor to make this designation on the Official Form. If a debt is disputed, contingent or unliquidated, a brief statement of the nature of the dispute should be included. The statement itself should concisely set forth the amount in dispute if less than the entire claim, the nature of the contingency or what is required to liquidate the claim.

i. A debt is disputed when the debtor denies its validity. A debt may be disputed in whole or in part. The entire amount of the debt claimed by the creditor should be listed.
ii. A claim is contingent when the liability of the debtor has not yet been fixed, e.g., as a cosigner where the primary borrower has not defaulted or a claim arising out of an automobile accident where liability has not been established.
iii. A claim is unliquidated when the amount of the claim has not been determined and cannot be determined with reasonable certainty by a simple mathematical calculation. Merely because the debtor might not know the amount of all charges and accrued interest claimed by the creditor does not make the claim unliquidated. The amount can be determined by simple arithmetic. If the exact amount of the claim is unknown, the debtor should provide the best estimate using all information reasonably available to the debtor. If the amount is truly unknown, it is permissible to insert "Unknown" in the amount column. In any case, the claim must be scheduled.
iv. A complete mailing address must be listed for each creditor. If the creditor's current address is unknown, the last known address should be provided. A debtor is expected to make a good-faith effort to identify all known creditors and to provide current addresses. If within 90 days preceding the filing a creditor has provided the debtor with two communications containing the debtor's account number and the address at which the creditor requests to receive written communications (cf., payments), then notices must be sent to the creditor at the address provided, and must also contain the debtor's account num-ber.²¹⁵ A creditor may provide the court with a notice of the address to be used for giving notice in all chapter 7 and 13 cases, and in that case, the address provided must be used.²¹⁶ If the creditor is a credit card issuer, the card-member agreement or the last billing statement may contain an address for notice of bankruptcy.²¹⁷ Otherwise, use the address provided for billing inquiries and not the address to which payments are sent.

2. Schedule A/B: Real and Personal Property

All real property, i.e., land or permanent improvements to land, or interest in real property, owned by the debtor is listed on Schedule A/B. If the debtor is married or owns property jointly with another, check the appropriate ownership box for who has an interest in the property. If the debtor leases property owned by someone else, it should not be listed on Schedule A/B. However, if the debtor owns the property and it is leased to another, it must be listed on Schedule A/B.

Schedule A/B breaks down a debtor's personal property into categories such as vehicles, household items and financial assets. Cash on hand means currency and coin, not money on deposit in a financial institution. For all checking and savings accounts, include the redacted account number, financial institution in which the money is deposited, and account balance on petition filing date. Schedule A/B must include any contingent and unliquidated claims of the debtor and personal injury and other claims against third parties, regardless of whether a lawsuit has been initiated.

3. Schedule C: Property Claimed as Exempt

Items claimed as exempt on Schedule C must also appear on Schedule A/B. Include the same descriptive and value information as appeared for the item in Schedule A/B. The value claimed to be exempt must be included; a failure to include a value may prompt an objection to the claim of exemption. The new Schedule C form permits a debtor now to check the box exempting "100% of fair market value [of an asset], up to any applicable statutory limit."²¹⁸ The value claimed as exempt may be less than its full value because the debtor may need to deduct amounts for either liens or statutory limits on the amount of the exemption.²¹⁹

4. Schedule D: Creditors Holding Secured Claims

a. Definition

A secured creditor is a creditor who holds a security interest in property owned by the debtor. Examples include the mortgagee or deed-of-trust holder on a residence, the holder of the lien on a motor vehicle or boat, certain consumer creditors who sold the debtor goods on credit, and tax liens.²²⁰ The description of the collateral should be the same as the description of the property contained in Schedule A/B. A claim on which the debtor is liable but that is secured by property owned by a person other than the debtor is not a secured claim, nor is a claim that is simply cosigned by someone other than the debtor.

b. Amount of Secured Claim

A secured claim cannot exceed the value of the creditor's interest in the collateral.²²¹ To determine the creditor's interest in the collateral, deduct from the replacement value of the property the total amount of any senior liens. If the result equals or exceeds the amount of the creditor's claim, the creditor is fully secured. If the remaining collateral value is less than the amount of the creditor's claim, the creditor is secured to the extent of the remaining value in the collateral and unsecured as to the balance. Priority among secured claimants to the same property is generally the same as outside of bankruptcy.

Illustration: Assume a house is worth $100,000 with a first deed of trust having a balance of $80,000 and a second deed of trust with a balance of $25,000. The holder of the first deed of trust is...