Bankruptcy Nuts ‘N’ Bolts

Bankruptcy Nuts ‘n’ Bolts

June 11, 2015

Table of Contents

Chapter 3 12:45-1:45pm Chapter 7: Filing Requirements, Assets and Exemptions, and Discharge Issues Alan J. Wenokur, Attorney at Law

Electronic format only:

1. Article – Chapter 7 Overview

CHAPTER 7 OVERVIEW

Alan J. Wenokur Attorney at Law 600 Stewart St., Suite 1300 Seattle, WA 98101

206-682-6224 [email protected]

Alan Wenokur has been a Seattle bankruptcy attorney since 1988, and a sole practitioner since 1991. He regularly represents debtors in Chapter 7 and Chapter 13 bankruptcy cases, typically in more challenging cases involving business debt or complex financial affairs. He represents creditors in all chapter proceedings. He also focuses on representation of Chapter 7 trustees in matters including undisclosed assets, fraudulent behavior, recovery of more speculative assets, and bankruptcy litigation.

Mr. Wenokur is a member of the Washington State Bar creditor/debtor section, the American Bankruptcy Institute, and the US Bankruptcy Court local rules committee. He is AV-rated, and since 2012 has been regularly selected by his peers as a bankruptcy “SuperLawyer.” He speaks frequently at professional seminars, particularly on the role and responsibilities of debtor’s counsel in Chapter 7 cases.

I. INTRODUCTION.

II. THE FUNDAMENTAL CONCEPT OF CHAPTER 7

III. THE PARTIES.

A. The Debtor

B. The Creditors

1. Administrative expenses 2. Secured claims 3. Priority claims 4. General unsecured claims 5. The Debtor

C. The Chapter 7 Trustee

D. The Professionals

E. The United States Trustee

F. The Bankruptcy Judge

IV. THE BANKRUPTCY PROCESS

A. Pre-filing--Information Gathering

1. The assets 2. The debts 3. Income and expenses 4. Documents

B. The Schedules

C. Credit Counseling Certificate

D. Filing

E. The Meeting of Creditors

F. Financial Education

G. The Trustee’s Activities

1. Liquidation 2. Avoidance actions 3. Lien avoidance

H. The Creditors

1. Claims 2. Complaints regarding discharge 3. Relief from stay 4. Reaffirmations

I. The Discharge

V. NUTS AND BOLTS

A. The Bankruptcy Courts

B. Electronic Filing

C. Forms

D. Motions and Notices

E. Amendments

F. Adversary proceedings

I. INTRODUCTION.

This outline will provide general information regarding bankruptcy under Chapter 7. It is intended to provide you with enough detail to give you a good basic understanding of the process, without snowing you under with too much information. Obviously, there are exceptions and nuances to just about everything described in this outline.

The Bankruptcy Code, Federal Rules of Bankruptcy Procedure, and reported case law are the primary sources of information. All section references here are to the United States Bankruptcy Code, 11 U.S.C. § 101 et seq. All Rule references are to the Federal Rules of Bankruptcy Procedure.

II. THE FUNDAMENTAL CONCEPT OF CHAPTER 7.

Chapter 7 is a liquidating bankruptcy; an individual debtor cannot pay his or her debts, and seeks a fresh start. The goal is to wipe out, or “discharge”, most if not all debt, and keep most if not all property. The actual result depends on the type of debts and type and value of property held by the debtor.

Fundamentally, Chapter 7 represents a forced imposition of a settlement of debt by the debtor on his or her creditors. The debtor offers up all assets that cannot otherwise be protected as exempt and that are not completely encumbered by security interests (more on each of these below), in return for relief from debt and a chance at a fresh start.

Chapter 7 is available to individuals and to married couples, who would file a joint petition. It is also available to entities—that is, corporations, LLCs, partnerships, and unincorporated organizations such as nonprofits. Entity filings do not include the “fresh start.” The entity filing a Chapter 7 bankruptcy ceases to exist, gets no discharge, is not entitled to protect any property as exempt, and experiences the liquidation of all of its property.

In each Chapter 7 case, a trustee is appointed, whose job it is to review the debtor’s petition and schedules and, if appropriate, liquidate any

non-exempt assets. If there are no non-exempt assets, the trustee issues a “no-asset” report, and takes no further action.

III. THE PARTIES.

A. The Debtor.

The debtor is the person or entity that commences a case in Bankruptcy Court by filing a petition. A married couple may—but does not have to—file a joint petition as co-debtors. Unmarried persons may not file a joint petition. “Who may be a debtor” is outlined in Code § 109. In rare cases, an involuntary bankruptcy may be commenced by creditors, an event that is outside the scope of this outline.

The debtor’s goal in Chapter 7 is a discharge, which is the debtor’s fresh start. The discharge is the court order stating that the debtor is legally excused from all prepetition debt (that is, debt which the debtor incurred prior to the moment of filing the petition) that is otherwise dischargeable in bankruptcy. The concept of dischargeability is discussed below.

Entities such as corporations and LLCs are not entitled to a discharge in Chapter 7. Entities that are no longer doing business generally do not file a Chapter 7 petition and will die a different kind of death, through expiration of state registration, going out of business sale, return of assets to secured lenders, etc. There nevertheless may be good reasons for an entity to file a Chapter 7, such as to permit an orderly liquidation of assets supervised by a bankruptcy trustee, or where a bankruptcy filing may result in payment of priority debts such as tax debt that the company principal may be liable for and particularly wants to see paid.

B. The Creditors.

“Creditor” is very broadly defined in the Bankruptcy Code. A creditor is anyone with a claim against the debtor. A “claim” is a right to receive a payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured. § 101(5). In other words, anyone claiming any right to payment of any kind, even if that right is disputed or speculative, is a creditor. For that reason, a debtor should list in the schedules all persons who may have a claim, even if the debtor believes no such right exists.

How a creditor fares in a Chapter 7 bankruptcy proceeding depends on what kind of claim that creditor possesses. There are four main types of claims:

1. Administrative expenses.

These are expenses incurred postpetition and during the administration of the bankruptcy estate. § 503. They include the claims of the trustee and the professionals hired by the trustee, and any costs of liquidation such as storage fees and sales expenses. Except for a limited priority given to domestic support obligations, all administrative expenses are paid before any prepetition creditors are paid. All administrative expenses must be approved by the court.

2. Secured claims.

Secured creditors include real estate loans, car loans, purchase money security interests, mechanics’ liens, judgment liens, etc. A secured claim is effective in bankruptcy only if the creditor has properly perfected its interest under applicable law. An unperfected secured claim is not enforceable against a Chapter 7 bankruptcy trustee.

The bankruptcy discharge only affects a creditor’s in personam rights against the debtor. It does not typically affect any in rem rights against the collateral. As a result, secured creditors have heightened protection in bankruptcy because of their perfected interest in the collateral held by the debtor. If the debtor does not maintain payments, the creditor will ultimately be able to assert its rights against the collateral under applicable law. If the trustee sells the asset, the secured creditor ordinarily gets paid in full with interest, and the bankruptcy estate takes the balance. Unless the trustee sells the asset, the secured creditor will typically need to look to its collateral and will not be entitled to any distribution in the bankruptcy case.

Trustees typically will not sell fully encumbered property in Chapter 7. That said, trustees have been making a decent living over the last few years conducting short-sales of overencumbered non-homestead real property with the consent of the secured creditor and permission of the Bankruptcy Court.

In the case of secured consumer loans, such as car loans, the debtor and creditor may enter into a “reaffirmation agreement” creating a new, postpetition obligation of the debtor to make payments on the loan that is unaffected by the debtor’s discharge. § 524. In the absence of a reaffirmation, the creditor may (but will not always) have the right to repossess its collateral.

Where the value of the collateral has declined, a debtor may be able to reduce the amount of the secured claim to the value of the collateral. This right, however, is not available to modify liens secured by principal residences. Thus underwater or entirely undersecured consensual liens on

residences may not be modified through a Chapter 7 case. A debtor also may not reduce or “cram down” the value of liens secured in automobiles, if they have been financed within 910 days prior to the bankruptcy filing.

The Code gives the Bankruptcy Court the ability to make rulings regarding the validity and extent of secured claims. § 506. Debtors and creditors alike can take advantage of judges knowledgeable in all aspects of commercial law in order to litigate disputes over issues arising in secured claims.

While consensual liens are favored in bankruptcy, nonconsensual liens such as judgment liens are disfavored. Judgment liens and non- purchase money liens may be stripped off property (i.e., “avoided”) if those liens interfere with the debtor’s exemption claims. § 522(f). It is critical for debtor’s counsel to determine whether there are any judgment liens on otherwise exempt property (most often the debtor’s homestead), and if so to take steps during the bankruptcy case to avoid the lien. Otherwise, debtor’s counsel may pick up the phone several years later with a client on the line who is seeking to refinance his house and wondering why a debt that was discharged is showing up on title. The easiest way to protect against this happening is to routinely check county records for any recorded judgments before the petition is filed.

3. Priority claims

Priority creditors are unsecured creditors who have been afforded special treatment in the Code. Priority claims are entitled to payment in full before general unsecured creditors receive any distribution.

Priority claims are listed in § 507, and include: Domestic support obligations (i.e., spousal maintenance and child support), claims for certain wages, contributions to employee benefit plans; deposits for the purchase of property or services; and most (but not all) tax claims.

Priority taxes are not dischargeable. But certain tax claims are dischargeable in bankruptcy. For a tax to be dischargeable it must be a tax on income, where the return was filed more than two years prior to the bankruptcy filing, the tax return was due (including extensions) more than three years prior to the filing, and the tax was assessed more than 240 days before filing. § 507(a)(8).1 These time periods may be tolled by intervening

1 It may also now be a requirement for discharge that the return has been timely filed. There are an increasing number of cases (none at the 9th Circuit level), relying on unfortunate drafting in the 2005 amendments to the Bankruptcy Code, that hold that if a return is even one day late, the taxes are never dischargeable. Tax discharge issues, which were always somewhat complicated, are now even more so.

bankruptcy filings or offers in compromise, so it is important to read the statute carefully and review detailed tax transcripts from the IRS in order to determine if a particular tax may be discharged.

4. General unsecured claims

This category includes everyone else—charge cards, personal loans, medical bills, tort claims, business debts, etc. If there is enough in the bankruptcy estate to go around after administrative expenses and priority claims are paid in full, unsecured creditors will share the balance on a pro rata basis. If there is enough to pay such claims in full, interest is paid at the federal judgment interest rate from the date of filing.

5. The Debtor

In very rare cases, everybody gets paid and there is money left over. That money goes to the debtor.

C. The Chapter 7 Trustee.

Chapter 7 bankruptcy is largely an administrative process. In most cases, debtors never see the inside of a courtroom, and bankruptcy judges never see the case file. The trustee is the case administrator. The Chapter 7 trustee is a member of a panel of professional trustees, primarily but not exclusively lawyers, who every four weeks or so gets a calendar of filings. The trustee’s primary job functions are to review the petitions and schedules, convert to money any non-exempt property, and distribute the proceeds to creditors. This process is discussed below.

Additionally, the trustee will respond to inquiries from creditors, preside over the meeting of creditors, where the debtor is examined under oath regarding assets and liabilities, review each filing for the possibility of fraud or abuse of the Bankruptcy Code, bring avoidance actions for preferential payments or fraudulent transfers, and perform other duties relating to the administration of the bankruptcy cases.

Trustees are currently paid $60.00 for each non-asset case. For cases where assets are administered, trustees are paid a percentage commission tied to the amount of money disbursed in the case. § 326.

D. The Professionals.

In a Chapter 7 with significant assets to be administered, the trustee may employ an attorney to do the legal work necessary to assemble, liquidate, and distribute the assets to creditors. An accountant may be

7 employed to prepare tax returns for the estate, since a Chapter 7 bankruptcy estate is a separate taxable entity. Auctioneers may be employed to sell property. The trustee employs these professional persons only upon entry of a court order authorizing that employment. § 327. The professional must disclose all connections with all parties in interest, and declare that there are no conflicts of interest.

A Chapter 7 debtor will almost never formally employ a professional through the bankruptcy court. The standard flat fee typically charged by debtors’ attorneys in Chapter 7 does not require court approval, but must be disclosed in the petition. Unless the trustee employs debtor’s counsel in the bankruptcy case—a very rare occurrence—postpetition fees incurred by debtor’s counsel may not be paid out of funds acquired by the bankruptcy estate. The debtor and his or her counsel will have to strike their own deal for payment for postpetition services.

Creditors need not obtain approval for employment of their own professionals.

E. The United States Trustee.

The Office of the United States Trustee is a division of the federal Department of Justice. Its function is oversight of the administration of bankruptcy cases. Its primary duties, as defined in 28 U.S.C. § 586, include supervising the Chapter 7 panel trustees, and supervising the administration of cases under Chapters 7, 11 and 13. The U.S. Trustee also reviews consumer filings for signs of abuse and all filings for issues that might warrant a challenge to the discharge. Recently, the national office has taken an active interest in pursuing mortgage documentation and foreclosure abuses.

F. The Bankruptcy Judge.

Bankruptcy law has its own code, its own rules, its own courts, and its own judges. Bankruptcy judges are appointed for 14 year terms. The judges sit as officers of the United States District Court.

There are five judges in the Western District of Washington. Three sit in Seattle, and two in Tacoma. Each judge has his or her own assigned caseload. Judges’ calendars, as well as individual chambers’ procedures, are posted on the court’s web site (www.wawb.uscourts.gov). Questions regarding chamber procedures may often be easily addressed with a telephone call to the courtroom clerk.

Rulings of the bankruptcy judges may be appealed to the U.S. District Court or, alternatively, to the 9th Circuit Bankruptcy Appellate

Panel (BAP), a three-judge panel of bankruptcy judges. Either party to the appeal has the option of declining to go to the BAP, and having the matter heard by the District Court. Appellate decisions of the BAP or District Court may be appealed of right to the full Ninth Circuit.

IV. THE BANKRUPTCY PROCESS.

A. Pre-filing: Information Gathering.

At the initial interview, the lawyer should discuss with the client the various options available: 7, 11, 13, or not filing. The option of not filing should be explored fully. Bankruptcy should always be a last resort.

Certain disclosures must be given to the prospective debtor at the initial meeting. See § 527. Debtor’s counsel is also required to obtain a written fee agreement within five days of that meeting. § 528(a).

The lawyer needs to review the client’s financial picture in considerable detail: That is, what are the client’s assets, how much is owed (and to what types of creditors), what is the client’s historical and current income, and what are the client’s regular expenses. To get all the information needed to prepare the bankruptcy schedules and statements, I provide the client with a questionnaire that essentially matches up with the questions in the required bankruptcy schedules and statements. Attorneys can also subscribe to companies that provide on-line tools for preparation of client questionnaires and bankruptcy schedules.

1. The Assets and Exemptions.

Stated simply, the debtor must disclose on the bankruptcy schedules all assets, no matter how insignificant or speculative. Failure to do so may jeopardize the debtor’s discharge.

Be aware that “asset” means all property rights of any kind. Assets include intangible items such as personal injury claims and other tort or contract claims that could be pursued, even if recovery is speculative. If you don’t know whether something is an asset or should otherwise be disclosed in the bankruptcy schedules, always err on the side of disclosure. It cannot hurt your client to overdisclose. It can hurt severely if you underdisclose.

Unlike property interests held at the time of the bankruptcy filing, postpetition income from personal services is not an asset of the bankruptcy estate. The individual debtor is permitted to work and earn a living, with income earned free and clear of prepetition creditors whose claims are subject to discharge.

But take note that the assets of a sole proprietor include all of the business assets (and the creditors include all of the business debts). In most instances, a sole proprietor cannot operate the business once the Chapter 7 petition has been filed. In contrast, the asset of an individual sole shareholder of a corporation is the corporate stock; the business assets are owned by the non-debtor corporation and are not property of the bankruptcy estate. The stock may have no value and thus would not be sold by the trustee, enabling the debtor to keep going with the business. The flip side is that the business debts are not discharged and corporate creditor may continue to pursue claims against the company. If the stock has value, it may be at risk of sale in the Chapter 7 case, and the client may want to look closely at options other than Chapter 7.

The prospective debtor always wants to know what assets will be lost in Chapter 7. In most cases, the answer is “none”. The ability to exempt property generally permits debtors without substantial assets to retain all they have at the time of filing.

Federal and state law provide that certain property is exempt from creditors. The two sets of exemptions differ significantly in places. The debtor’s attorney must select one or the other, depending on what types and amount of property the debtor has. For example, state law is more favorable in regard to homestead exemptions on personal residences (state = $125,000; federal = $22,975 [x 2 if joint filing]). On the other hand, the federal exemptions generally provide more protection for personal property. Federal exemptions are listed in § 522(d). State exemptions are generally in RCW 6.13 and 6.15.

The debtor must provide a complete itemization of all property, including liquidation values. In the case of larger items like houses, a recent appraisal is helpful. Debtor’s counsel should review the property valuations, and select the exemptions that provide the most benefit. If the trustee is in doubt about the debtor’s valuation, the trustee may decide to have an appraiser take a look.

In the case of joint filings by a married couple, some exemptions may be doubled up, but some may not. The wording of the exemption statutes must be carefully checked. One spouse may not choose the federal exemptions while the other chooses the state exemptions.

Exemptions are for individuals only. Entities that file bankruptcy do not get to exclude any property from liquidation.

Because the exemptions are typically sufficient to cover all the debtor’s assets, most cases are deemed to be “no-asset” cases and are closed without much activity. Upon reviewing the schedules and exemption claims,

the trustee will make an initial determination as to whether the estate has any interest in the property which might be sold for the benefit of creditors. A trustee will not sell an asset unless there will be proceeds for unsecured creditors. For example, the state homestead exemption requires that the first $125,000 in net proceeds from the sale of a residence must be paid to the debtor. If a house is worth $550,000, and has liens against it of $400,000, and after deduction of say $50,000 for hypothetical costs of sale, $100,000 would be left over. Since the debtor is entitled to up to $125,000 as a homestead exemption, the trustee would not be able to sell the house.

If the prospective debtor knows there are nonexempt assets which are likely to be sold or otherwise turned over to the trustee, the debtor must consider whether it is possible to legitimately convert that nonexempt property into exempt property before filing. Such pre-bankruptcy planning is outside the scope of this outline, except to say that whatever is done, it should be done at arm’s-length, for fair value, and be disclosed and justifiable if inquiry is made. Alternatively, if the debtor files with nonexempt assets and the trustee is inclined to sell property, the debtor can attempt to purchase the bankruptcy estate’s interest, by paying the trustee what the trustee would realize if the property were sold.

2. The Debts.

The debtor must prepare and file schedules listing all creditors with amounts owing. At the first conference between attorney and client, debtor’s counsel needs to know approximately how much is owed, and to whom. If the debt owed is predominantly nondischargeable (e.g., taxes, student loans), Chapter 7 may not be the answer. Secured debts must be identified and decisions made as to what to do about lien claims.

While credit reports are very helpful, they may not be a complete listing of all creditors. The attorney needs to probe for all types of debts to all types of creditors.

In preparing schedules, the creditor’s correct mailing address is the critical piece of information. It is crucial that the creditor be notified of the bankruptcy filing, so that collection actions cease and the debt will be discharged. Be sure that the address used in the filing is the correspondence or mailing address, not the payment lockbox.

All debts must be listed, even debts to family members and friends. Disputed, contingent, and unliquidated debts need to be scheduled.

3. Income and Expenses.

The individual debtor’s monthly income and expenses will show up in two different places on the bankruptcy schedules.

First, the debtor will disclose an budget of income and expenses, based upon estimated monthly cash flow going forward. This appears on Schedules I and J.

Then there is the “means test,” outlined in § 707(b)(2), and found collectively in three forms that are parts of overall Form 22A. These forms are attached to this outline. A full volume may be written about this “test,” which is difficult to parse through and is the subject of an ever-growing body of case law. For “basic bankruptcy” purposes, here is what one needs to know:

The means test only applies to individual debtors with “primarily consumer debt”, which is debt incurred for personal, family, or household purposes. § 101(8). “Primarily” means 50% plus $1.00. Tax debt is not consumer debt. Mortgages on personal residences are consumer debt. Mortgages on rentals may be nonconsumer investment debt if the property was purchased solely for investment purposes and was never used as the debtor’s residence.

If the means test is inapplicable, the debtor must file the exemption form (Form 22A1-supp). That should be the end of the matter, but be aware of a slowly developing set of cases holding that a case may be converted from Chapter 7 to Chapter 11 under §706(b) where an individual who is not a consumer debtor has the capability of repaying his or her debts in Chapter 11. If you have an individual with primarily nonconsumer debts and significant monthly income, you will want to learn about this new area of law.

The means test is intended to determine whether a consumer debtor has sufficient excess income over expenses on a monthly basis that he/she could make a meaningful payment in Chapter 13. If the debtor has that income, and elects to file Chapter 7, the filing is presumed to be an abuse of the chapter and the case is vulnerable to dismissal.

Income is measured by taking the monthly average of all funds received by the debtor over the six calendar months preceding the month of the bankruptcy filing. If that amount, which is defined as “current monthly income” (even though it is not current, not monthly, and often not “income”), multiplied by 12, is less than the median income for a household of the same size as that of the debtor, there is no presumption of abuse and monthly expenses need not be considered.

Median income tables may be found on the U.S. Trustee’s web site and elsewhere, and are periodically adjusted. They are based on the number of persons in the “household”, an undefined term. Courts generally take a practical attitude to assessing household size, preferring, say, an actual “heads on beds” count rather than the number of deductions claimed on a federal tax return. For cases filed after May 15, 2015, here are the medians in the State of Washington:

Household of 1: $53,234 Household of 2: $66,869 Household of 3: $75,635 Household of 4: $86,161 Each additional person: add $8,100

If the debtor’s income is “above median,” monthly expenses are considered to arrive at a bottom line net available disposable income. These deductible expenses are a mix of certain types of expenses permitted under IRS standards (including fixed amounts for food, utilities, and transportation costs) and certain actual expenses (including payments on secured debts).

If the income after expenses exceeds a certain percentage of the debtor’s unsecured debt, abuse is presumed, certain parties have standing to seek dismissal, and the debtor might be better off selecting Chapter 13.

As a practical matter, in nearly all consumer cases either the debtor will be below median or the allowed expenses will exceed the monthly income. Generally, the means test is a hurdle, not a roadblock, to a Chapter 7 filing.

Note: Even if the debtor satisfies the means test, the trustee or U.S. Trustee still may seek dismissal of a consumer case for bad faith or if the totality of circumstances indicates “abuse”, a term undefined by the Code. § 707(b)(3). An example would be where the debtor passes the means test by gaming the system, such as by intentionally deferring substantial income until the postpetition period.

A considerable amount of information about the means test, including links to the data used for filling in the forms (data that will be built into bankruptcy forms software), and information regarding the U.S. Trustee’s position on certain line items, is at www.justice.gov/ust/means- testing.

4. Documents.

The debtor needs to give to counsel copies of the most recent federal tax return, “payment advices” (that is, pay stubs) for the sixty days prepetition, and bank statements that include the date of filing. All these need to be provided to the Chapter 7 trustee, at least one week prior to the § 341 meeting, Local Rule 4002. The best practice is to have the client provide not only these documents, but at least six months worth of wage and bank statements and the last two tax returns. They should be reviewed carefully for transfers, sources of income, investment accounts, and other items that may be required to be disclosed in the bankruptcy filing.

B. The Schedules.

Debtor’s counsel, working with the debtor, will prepare the bankruptcy petition and all supporting schedules and statements. The information on the required court filings includes: the debtor’s property, both real and personal, and values; exemption claims; the secured, priority unsecured, and general unsecured creditors, including addresses, account numbers, and amounts; any obligation for which there is a co-debtor; executory contracts and unexpired leases where the debtor is a party; monthly income and expenses; a statement of financial affairs, that includes disclosure of a variety of financial information (including past income, lawsuits, payments to creditors, repossessions, and business information); a disclosure of compensation paid to the debtor’s attorney; a statement regarding the debtor’s intention with respect to secured consumer debt; a mailing matrix listing the addresses of all creditors; and the means test analysis. Owning up-to-date bankruptcy forms preparation software, which will generate all of these forms, is a prerequisite to filing bankruptcy cases.

The debtor signs the petition and schedules under penalty of perjury. False oaths subject the debtor to both denial of discharge and possible criminal penalties. Accuracy of schedules is critical to the success of the filing.

In the case of a corporate debtor, there should also be a resolution of the corporation or consent of all directors authorizing the filing and the hiring of debtor's counsel.

C. Credit Counseling Certificate.

The individual debtor is required to obtain a certificate of completion of a course of credit counseling prior to filing. This requirement, by consensus a waste of time and money, is completed by contacting one of a number of companies authorized to provide such services. A list of approved providers may be found on the bankruptcy court’s web site. If the

debtor has not obtained a certificate prior to filing, the case will be dismissed. For this reason, it is critical to advise clients who may present with very limited time (such as an imminent foreclosure) to drop everything and get the certificate.

D. Filing.

The practical details of filing are set out below. Upon filing, the case will be assigned a case number, bankruptcy judge, and panel trustee.

The first form generated following a bankruptcy filing is the official “Notice of Bankruptcy” issued by the Clerk of Court. The debtor, trustee, and all creditors will receive this notice. It lists several important pieces of information:

The name of the debtor(s), the date and location of filing, the case number, and the name of the assigned judge.

The name and address of debtor’s attorney and trustee.

The date and time for the meeting of creditors

The deadline for filing complaints related to the discharge

A notice of automatic stay prohibiting certain activities against the debtor and the debtor's property.

The bankruptcy filing triggers an automatic injunction on nearly all types of creditor activity, including letters, phone calls, lawsuits, garnishments, executions, etc. The stay invalidates most postpetition creditor activity even if the creditor is unaware of the filing. Notwithstanding the stay’s automatic effect, if you know of a pending action such as a foreclosure, it is always the best practice to let the foreclosing trustee and/or creditor know immediately upon filing. The scope of the automatic stay, and its many exceptions, is set out in Code § 362.

I tell my debtor clients that if they receive phone calls from creditors after filing, they should pass along my name and number and feel free to hang up.

Once a creditor knows of the bankruptcy filing, the creditor may legally do nothing more without first obtaining an order of the court. The general grounds for relief from stay are discussed below, although any real detail on the subject is outside the scope of this outline. It is unusual for anyone beyond secured creditors who are not being paid and wish to foreclose or repossess to seek relief from stay.

E. The Meeting of Creditors.

The meeting of creditors, required by § 341(a) of the Code, is also known as a “341 meeting.” All debtors are required to attend, and cannot get a discharge without attending. Counsel should note the date and time of the meeting of creditors, and send a letter to the client confirming the hearing date.

The hearing is presided over by the Chapter 7 trustee. It is an opportunity for the trustee and for any creditors who appear (an unusual occurrence) to question the debtor under oath regarding assets, liabilities, prospects for payment, etc. The hearing is digitally recorded.

When the case is called, the debtor is sworn in, and will then be asked a series of questions by the trustee. These questions not only confirm the accuracy of the documents filed with the court, but also seek to determine if there are any nonexempt assets or other issues relevant to estate administration. About ten or so cases are set on every hour-long calendar. The debtor is required to present both a photo ID and proof of his or her full social security number.

In a typical no-asset consumer Chapter 7, the meeting of creditors is the debtor’s first and last contact with the Bankruptcy Court.

F. Financial Education.

Individual debtors are required to take a course in financial education subsequent to filing and prior to discharge. The discharge order will not be issued without a completion certificate on file with the Court. A list of approved financial management courses may be found on the court’s web site.

G. The Trustee’s Activities.

1. Liquidation

The trustee’s main role is to review the debtor’s schedules for nonexempt assets and, if appropriate, to liquidate those assets. If there are no nonexempt assets, the trustee will docket a Report of No Distribution, or “no asset report”, and take no further action on the case.

The trustee may employ an attorney, appraisers, auctioneers, and other professionals to assist in the liquidation. Liquidation may involve sale of real or personal property, either at private sale or public auction, collection of accounts receivable and other money owed the debtor, and

litigating causes of action belonging to the debtor. This last item includes bringing lawsuits for tort or contract claims, or stepping into already pending lawsuits in the name of the debtor's estate.

2. Avoidance actions.

The trustee may also bring certain avoidance actions on behalf of the estate. These are causes of action that specifically arise in bankruptcy, and are designed primarily to insure that no single creditor is favored over other similarly situated creditors. The concept of equivalent distribution to similarly situated creditors is one of the key concepts of the Bankruptcy Code.

There are three main types of avoidance actions:

a. Preference actions--§ 547

A preference is a transfer to a creditor on account of an “antecedent debt” (i.e., a debt predating the payment as opposed to a contemporaneous purchase and sale) that puts that creditor in a more favorable position than other creditors. The payment must be made within 90 days of the date of filing, or within one year in the case of insiders (relatives, partners, corporate officers and affiliates), and while the debtor is insolvent. Insolvency is presumed in the 90 days prepetition. The creditor must have received more by the payment than it would have received in Chapter 7 if the payment had not been made. This last requirement makes it difficult to make a preferential payment to a priority creditor.

Consumer debtors have sometimes repaid relatives on loans within the year preceding filing, or given them security on a preexisting debt. Those payments and other transfers must be disclosed, and it can be uncomfortable if the trustee starts asking the debtor’s family members to pay back money. Be sure to ask about transfers to relatives and be aware of the preference implications.

There are a number of such transfers that are not deemed preferences, including payments in the ordinary course of business (e.g., to trade vendors within the normal billing cycle), payments which are a “substantially contemporaneous exchange”, and payments for which new value is given. There is voluminous case law on each exception.

The simplest example of a preference would be where the debtor pays an unsecured creditor money on a months-old bill within 90 days of filing. The trustee may then demand that the creditor return the funds to the bankruptcy estate, so that the money may be distributed equally to all creditors. A transfer need not be one of money. A debtor who gives an

17 unsecured creditor a deed of trust in his personal residence, to secure an old debt, has made a preferential transfer.

Nothing aggravates and mystifies creditors more than receiving a letter from the trustee, or worse yet a summons and complaint, demanding return of preferential payments, when the creditor is still owed additional money by the debtor. Nevertheless, unless the payment falls into one of the exceptions, the creditor may have to return the funds received.

b. Fraudulent transfers--§ 548

The trustee may avoid any transfer of an interest of the debtor in property, made within two years of filing, if the debtor (a) made the transfer with the actual intent to hinder, delay, or defraud creditors, or (b) received “less than a reasonably equivalent value in exchange for such transfer”, and was insolvent at the time of the transfer or became insolvent because of the transfer. This is an action both to insure that no creditor receives an unfair advantage and to prevent the debtor from improperly sheltering assets.

The statute prevents actual fraud, by prohibiting transfers with the actual intent to hinder, delay, or defraud creditors; e.g., a quit claim deed of real property with equity, to the debtor’s sibling, for no consideration and to keep it out of the reach of creditors. The statute also prevents “constructive” fraud, by prohibiting transfers for less than reasonably equivalent value. This prevents an insolvent debtor from selling property at distress prices before filing, or gifting property, or paying a relative’s debt. What is reasonably equivalent value is decided on a case-by-case basis.

c. Unauthorized postpetition transactions--§ 549

The trustee may avoid any transfer of property of the bankruptcy estate that occurs after the commencement of the case and is not otherwise authorized. A debtor cannot file a petition and then make payment to any creditor out of assets (such as cash) held at the time of filing. There is a limited exception for certain transfers of real property.

d. Recovery of transfers--§ 550.

Recovery of avoidable transfers may be accomplished through a lawsuit in bankruptcy court, under the original bankruptcy filing, called an “adversary proceeding.” These are discussed below. Recoveries may be had from the initial transferee, any immediate transferee of the initial transferee, or the entity for whose benefit the transfer was made. § 550(a).

3. Lien Avoidance

The trustee is given “strong arm powers,” including the power of a hypothetical judgment lien holder or bona fide purchaser of real property. § 544. This provision enables the trustee to attack and set aside unperfected security interests in both real and personal property. For example, a creditor who loans money to the debtor, and takes a deed of trust in the debtor’s house, but fails to properly record the deed, would be vulnerable under state law to a bona fide purchaser of that house. The trustee steps into the shoes of that hypothetical bona fide purchaser, and the unperfected interest will not survive the bankruptcy filing. These avoidance powers may sometimes be used to invalidate security interests and free up property for liquidation.

The trustee can also avoid certain statutory liens, § 545. These include liens which first become effective upon insolvency or bankruptcy, liens for rent, or liens which are not enforceable against a bona fide purchaser.

G. The Creditors.

A creditor may take an interest in the case, or may do nothing, depending on the situation. Here are a few examples where creditors may be active:

1. Claims.

All creditors may file proofs of claim with the court clerk evidencing the amount owed them. Creditors in Chapter 7 must file claims only in cases where there will be a distribution to creditors. The creditors will receive a notice advising them to file claims and setting a deadline for doing so.

There is an official form for proofs of claim. See Rules 3001-3005 for rules regarding filing of claims. The proof of claim should state the amount and the type of claim (priority, secured, unsecured), and should provide supporting documentation such as invoices or security agreements.

The debtor or trustee may object to claims as appropriate. Rule 3007. The court may then hold a hearing to determine the validity and amount of the claim.

2. Complaints regarding discharge.

In Chapter 7, some debts are automatically nondischargeable, including student loans, priority taxes, and domestic support obligations. Other debts are nondischargeable only if the creditor proves they fall within an exception to discharge. These include the “bad act” debts, incurred through fraud, false pretenses, false financial statements, false representation (§ 523(a)(2)), embezzlement or larceny (§ 523(a)(4)), and willful and malicious injury (§ 523(a)(6)). In these cases, the creditor must sue the debtor in Bankruptcy Court, seeking an order that the debt is nondischargeable. The notice sent to all creditors at the beginning of the case will state the deadline for filing such complaints, which will be 60 days after the date first set for the meeting of creditors. Failure to file a timely lawsuit within this very short deadline may result in discharge of the debt.

These complaints are brought in the bankruptcy court as adversary proceedings. The Federal Rules of Civil Procedure apply, with certain variations for Bankruptcy Court. The creditor almost always bears the burden of proof, although it may be a more generous burden than in state law (e.g., preponderance of evidence instead of clear and convincing for fraud claims).

A creditor, the trustee, or the United States Trustee may also bring a complaint under § 727 objecting to the debtor’s entire discharge. Ordinarily, this type of suit is brought only for an affront involving the bankruptcy process (e.g., false oaths on bankruptcy schedules, hiding of assets, withholding of books and records, inability to account for loss of assets) An order denying discharge is, understandably, devastating for a debtor. The debtor winds up having gone through a Chapter 7 (and thus not being able to do so again for eight years), but receiving none of the benefits. One cannot emphasize enough, then, the importance of both accurate and complete bankruptcy schedules and a pre-bankruptcy examination of the debtor’s financial affairs to make sure of the absence of any potentially offending transfers of assets.

3. Relief from Stay.

If a creditor needs to take some action against the debtor after the date of filing, it must seek relief from the automatic stay under § 362(d). Creditors can get relief from stay only for “cause,” or if the relief concerns property where the debtor has no equity and the property is not necessary for a reorganization.

A secured creditor will likely seek relief if it is not getting the anticipated benefit from the debtor. The debtor may be in default, a foreclosure may be pending, the debtor has little or no equity in the

property, and relief from stay is desired to repossess and/or foreclose on the property. In this situation, the creditor will file a motion seeking relief. In the event the motion is opposed, the court will hold a hearing where the issue is typically the value of the property and the ability and willingness of the debtor to make payments.

An unsecured creditor rarely has a basis for relief from stay. “Cause” may exist where a creditor either needs to liquidate the amount of her claim (e.g., a personal injury suit against the debtor is pending and stayed by the filing, and there will be assets to distribute in the bankruptcy case, making the amount of the claim relevant) or where the stay affects the ability of the creditor to go after a co-debtor or insurance coverage.

4. Reaffirmations.

Secured creditors may seek a reaffirmation agreement from the debtor. This is a new contract entered into postpetition, whereby the debtor agrees to maintain payments and cure any default and the creditor agrees to allow the debtor to keep possession of the collateral. The agreement creates a new obligation that survives the bankruptcy. It potentially exposes the debtor to a deficiency claim in the event of a subsequent default. The debtor must affirm that the agreement is voluntary and does not work a hardship, and either the debtor’s attorney must sign or the court must approve the agreement. Reaffirmations are most often seen with car loans, because the car lender (if the car loan is fairly recent) may demand return of the car in the absence of reaffirmation.

Reaffirmation agreements are not recommended in the case of real property loans. The lender gets no additional rights in the absence of reaffirmation. It will need to go through the foreclosure process with or without reaffirmation. On the other hand, the debtor may be agreeing to additional potential liability for, say, a very significant deficiency judgment, by reaffirming a real property loan. I will almost never sign off on a reaffirmation of a real property secured debt.

The form of a reaffirmation agreement is dictated by Code § 524(k) and other provisions.

H. The Discharge.

For the individual debtor, the desired result of Chapter 7 is the discharge order. Again, corporations and LLCs do not get a discharge. The Chapter 7 discharge, the extent of which is described in §§ 524 and 727, discharges the debtor from all prepetition debts, except for those types of debts listed in § 523. If a married person files individually, the discharge

will include not only the filer but the marital community. The non-filing spouse would not be discharged from his or her separate liabilities.

As noted above, certain debts are nondischargeable only if the creditor takes prompt action to establish an exception to discharge. These include debts for money obtained through fraud, false representation, embezzlement, or larceny, and debts for willful and malicious conduct. Other types of debts are automatically nondischargeable. These include most taxes, all domestic support obligations, fines, penalties, and forfeitures payable to governmental units, student loans, personal injuries due to impaired driving, homeowners association dues, and violations of state or federal securities laws. The discharge is issued within a few days after the deadline for filing objections to discharge has passed.

V. NUTS AND BOLTS.

A. The Bankruptcy Court.

The Seattle court is located in the United States Courthouse, 700 Stewart St., Seattle, 98101.The Tacoma court is in the Union Station building located at 1717 Pacific Ave. Addresses and phone numbers for all chambers and other offices in the court may be found on the court’s website, www.wawb.uscourts.gov.

In addition to contact information, the court’s website contains links to many valuable resources, including all local rules and general orders, forms, electronic filing assistance, updates from the clerk’s office, and a lot of information targeted at providing information to pro se filers. Perhaps the first thing an attorney looking to expand his or her bankruptcy practice should do is spend time exploring this website.

B. Electronic Filing.

Electronic filing of petitions and other documents is mandatory for attorneys in Washington bankruptcy and federal district courts. All documents filed electronically are in turn delivered to other case participants electronically, through email messages. Details on both registering as an electronic filer and on how to file documents are on the court’s web site.

The filing fee for a Chapter 7 petition is $335. There are also fees for certain motions and for adversary proceedings.

C. Forms.

While it is possible to prepare abankruptcy petition by hand—pro se filers do it regularly—bankruptcy-petition-preparing software is for all intents and purposes mandatory for practitioners. There are several quality software products on the market for generating and filing bankruptcy petitions and schedules.

D. Motions and Notices.

Bankruptcy practice operates on notice to creditors. One can rarely do anything substantive in bankruptcy without first providing notice to creditors and an opportunity to be heard. Rule 2002 lists those actions requiring notice to all creditors and parties in interest, and the amount of required notice. Local Rule 9013 governs local motions practice.

Service by electronic notice works for most, but not all, notices. Service by mail suffices for the rest. Personal service by hand delivery is almost never required, subpoenas being the major exception.

Each judge keeps his or her own motion calendar. Consult the web site for dates and times. Working copies are not required (except in the case of large briefs and sets of exhibits), since the court receives the documents electronically.

E. Amendments to Bankruptcy Schedules.

If the debtor neglects to list certain creditors, or if any other changes are required, the schedules may be amended. A small filing fee is required if there are any changes to the list of creditors and mailing matrix.

F. Adversary Proceedings.

Lawsuits brought in bankruptcy court are called adversary proceedings. They are heard by the judge assigned to the bankruptcy case- in-chief. Most contested matters brought by the trustee, such as avoidance actions and collection suits, will be adversary proceedings. The adversary proceeding gets its own cause number and caption within the bankruptcy case-in-chief.

The rules are found in Part VII of the Bankruptcy Rules. Rule 7001 sets forth which matters require an adversary proceeding. The Rules are generally the Federal Rules of Civil Procedure, with some variation (e.g., service of summons and complaint may be done by first class mail, Rule 7004.)

There are no jury trials heard in Bankruptcy Court. If a jury is demanded, and there is an entitlement to have a jury decide the matter at issue, the Bankruptcy Court may handle all pretrial matters, but will send the case to the District Court for the actual trial.

Following the recent US Supreme Court case of Stern v. Marshall, 564 US 2 (2011), which appears to have restricted Bankruptcy Court jurisdiction over certain matters which may come before the bankruptcy judge, new procedures are being put into place where parties will need to consent to the issuance of final orders by the bankruptcy judge. Otherwise, such matters may wind up being sent to the district court for trial.

A few words about attorney’s fees in Chapter 7:

1. Flat fees can and should be charged for services to be performed.

Most (perhaps all?) Chapter 7 fees are charged as a flat fee. State bar rules permit the charging of a flat fee for services to be performed.

Among other things, the advantage of a flat fee charged to a prospective Chapter 7 debtor is that the attorney can collect prepetition and in advance for the necessary postpetition bankruptcy services (such as the meeting of creditors and assistance with post-bankruptcy debtor responsibilities) without having that payment be deemed an advance fee deposit (which would potentially be subject to turnover to the bankruptcy trustee), and without having to worry about trying to bill and collect from a bankrupt client postpetition.

See RPC 1.5(f)(2):

A lawyer may charge a flat fee for specified legal services, which constitutes complete payment for those services and is paid in whole or in part in advance of the lawyer providing the services. If agreed to in advance in a writing signed by the client, a flat fee is the lawyer's property on receipt, in which case the fee shall not be deposited into a trust account under Rule 1.15A. The written fee agreement shall, in a manner that can easily be understood by the client, include the following: (i) the scope of the services to be provided; (ii) the total amount of the fee and the terms of payment; (iii) that the fee is the lawyer's property immediately on receipt and will not be placed into a trust account; (iv) that the fee agreement does not alter the client's right to terminate the client-lawyer relationship; and (v) that the client may be entitled to a refund of a portion of the fee if the agreed-upon legal services have not been completed. A statement in substantially the following form satisfies this requirement:

[Lawyer/law firm] agrees to provide, for a flat fee of $______, the following services: ______. The flat fee shall be paid as follows: ______. Upon [lawyer's/law firm's] receipt of all or any portion of the flat fee, the funds are the property of [lawyer/law firm] and will not be placed in a trust account. The fact that you have paid your fee in advance does not affect your right to terminate the client-lawyer relationship. In the event our relationship is terminated before the agreed-upon legal services have been completed, you may or may not have a right to a refund of a portion of the fee.

The simple take-away: (1) Always have a written fee agreement with your client for Chapter 7; and (2) Always include the language required by RPC 1.5(f)(2).

2. Limiting (“unbundling”) services is possible, but must be done correctly.

There are certain legal services that are expected of every attorney who agrees to represent a debtor in Chapter 7. These certainly include preparation of the schedules and statements, amending these as need be postpetition to make any corrections, attending the §341(a) meeting, and responding to requests from the Chapter 7 trustee or the U.S. Trustee.

Other postpetition services may fall outside of what would be expected from debtor’s counsel working on a prepetition flat fee. The most obvious would be defense of an adversary proceeding related to discharge. But if you are going to exclude from the flat fee such postpetition services as defense of adversaries, or representation of the debtor at Rule 2004 examinations, or motions to avoid judgment liens, then you need to spell that out very clearly in the prepetition fee agreement, such that the client is giving informed consent to the limitation of services.

A discussion of what happens when unbundling is done incorrectly may be found at Hale v. U.S. Trustee, 509 F.3d 1139 (9th Cir. 2007), along with three lower court decisions also addressing the conduct of attorney Thomas Hale: In re Jones, 2002 WL 818275 (Bankr. D. Idaho 2002) and In re Jones, 2006 WL 694639 (D. Idaho 2006); In re Brown 2009 WL 1211373 (Bankr. D. Idaho 2009)

3. There is no such thing as a nonexempt retainer.

You may anticipate in a particular case that there will be extensive postpetition services required, which are going to fall outside the flat fee. For example, you may know that there is an angry creditor who will likely file a § 523 exception to discharge action.

Can you take a prepetition advance fee deposit for those anticipated postpetition services? Yes—but it needs to be placed in your trust account, and it is the debtor’s money until you use it. It needs to be disclosed on bankruptcy Schedule B, and if there are no exemptions available to protect the money, it needs to be turned over to the trustee.

4. You cannot get paid from the bankruptcy estate.

Even if the trustee collects lots of money from liquidation of assets in the bankruptcy case, the debtor’s counsel is not entitled to be paid from that fund for postpetition services performed, even if they were of great benefit

to the trustee and creditors. Any postpetition services not covered by the flat fee must be paid by the debtor from postpetition earnings.

5. Fee disclosure is required.

Attorneys representing debtors in Chapter 7 must disclose the source(s) of payment of all fees. A disclosure form is required as part of the initial filing. Disclosure of the source of any postpetition fees is also required. You cannot keep secret the identity of who is paying your fees in a bankruptcy case.

6. Withdrawal for nonpayment—or otherwise.

Note that the rules for withdrawing in federal court, including bankruptcy court, are different from the rules in state court. To withdraw as debtor’s counsel, it takes a motion set for hearing. It is not a “send out notice and wait ten days” process as in Superior Court. See LCR 83.2, Western District of Washington, made applicable in bankruptcy court through Local Bankruptcy Rule 9029-2.

Fill in this information to identify your case: Check one box only as directed in this form and in Form 22A-1Supp: Debtor 1 ______First Name Middle Name Last Name  1. There is no presumption of abuse. Debtor 2 ______(Spouse, if filing) First Name Middle Name Last Name  2. The calculation to determine if a presumption of abuse applies will be made under Chapter 7 Means United States Bankruptcy Court for the: ______District of ______Test Calculation (Official Form 22A–2). Case number ______ 3. The Means Test does not apply now because of (If known) qualified military service but it could apply later.

 Check if this is an amended filing

OFFICIAL FORM B 22A1 Chapter 7 Statement of Your Current Monthly Income 12/14 Be as complete and accurate as possible. If two married people are filing together, both are equally responsible for being accurate. If more space is needed, attach a separate sheet to this form. Include the line number to which the additional information applies. On the top of any additional pages, write your name and case number (if known). If you believe that you are exempted from a presumption of abuse because you do not have primarily consumer debts or because of qualifying military service, complete and file Statement of Exemption from Presumption of Abuse Under § 707(b)(2) (Official Form 22A-1Supp) with this form.

Part 1: Calculate Your Current Monthly Income

1. What is your marital and filing status? Check one only.  Not married. Fill out Column A, lines 2-11. Married and your spouse is filing with you. Fill out both Columns A and B, lines 2-11.  Married and your spouse is NOT filing with you. You and your spouse are:

 Living in the same household and are not legally separated. Fill out both Columns A and B, lines 2-11.  Living separately or are legally separated. Fill out Column A, lines 2-11; do not fill out Column B. By checking this box, you declare under penalty of perjury that you and your spouse are legally separated under nonbankruptcy law that applies or that you and your spouse are living apart for reasons that do not include evading the Means Test requirements. 11 U.S.C. § 707(b)(7)(B). Fill in the average monthly income that you received from all sources, derived during the 6 full months before you file this bankruptcy case. 11 U.S.C. § 101(10A). For example, if you are filing on September 15, the 6-month period would be March 1 through August 31. If the amount of your monthly income varied during the 6 months, add the income for all 6 months and divide the total by 6. Fill in the result. Do not include any income amount more than once. For example, if both spouses own the same rental property, put the income from that property in one column only. If you have nothing to report for any line, write $0 in the space. Column A Column B Debtor 1 Debtor 2 or non-filing spouse 2. Your gross wages, salary, tips, bonuses, overtime, and commissions (before all payroll deductions). $______$______3. Alimony and maintenance payments. Do not include payments from a spouse if Column B is filled in. $______$______4. All amounts from any source which are regularly paid for household expenses of you or your dependents, including child support. Include regular contributions from an unmarried partner, members of your household, your dependents, parents, and roommates. Include regular contributions from a spouse only if Column B is not filled in. Do not include payments you listed on line 3. $______$______

5. Net income from operating a business, profession, or farm Gross receipts (before all deductions) $______Ordinary and necessary operating expenses – $______Net monthly income from a business, profession, or farm $______Copy here $______$______

6. Net income from rental and other real property Gross receipts (before all deductions) $______Ordinary and necessary operating expenses – $______

Net monthly income from rental or other real property $______Copy here $______$______7. Interest, dividends, and royalties $______$______

Official Form B 22A1 Chapter 7 Statement of Your Current Monthly Income page 1 Debtor 1 ______Case number (if known)______First Name Middle Name Last Name

Column B Column A Debtor 1 Debtor 2 or non-filing spouse

8. Unemployment compensation $______$______Do not enter the amount if you contend that the amount received was a benefit under the Social Security Act. Instead, list it here: ......  For you ...... $______For your spouse ...... $______9. Pension or retirement income. Do not include any amount received that was a benefit under the Social Security Act. $______$______10. Income from all other sources not listed above. Specify the source and amount. Do not include any benefits received under the Social Security Act or payments received as a victim of a war crime, a crime against humanity, or international or domestic terrorism. If necessary, list other sources on a separate page and put the total on line 10c.

10a. ______$______$______10b. ______$______$______10c. Total amounts from separate pages, if any. +$______+ $______

11. Calculate your total current monthly income. Add lines 2 through 10 for each column. Then add the total for Column A to the total for Column B. $______+ $______= $______Total current monthly income

Part 2: Determine Whether the Means Test Applies to You

12. Calculate your current monthly income for the year. Follow these steps:

12a. Copy your total current monthly income from line 11...... Copy line 11 here12a. $______

Multiply by 12 (the number of months in a year). x 12 12b. The result is your annual income for this part of the form. 12b. $______

13. Calculate the median family income that applies to you. Follow these steps:

Fill in the state in which you live.

Fill in the number of people in your household.

Fill in the median family income for your state and size of household...... 13. $______To find a list of applicable median income amounts, go online using the link specified in the separate instructions for this form. This list may also be available at the bankruptcy clerk’s office. 14. How do the lines compare? 14a.  Line 12b is less than or equal to line 13. On the top of page 1, check box 1, There is no presumption of abuse. Go to Part 3. 14b.  Line 12b is more than line 13. On the top of page 1, check box 2, The presumption of abuse is determined by Form 22A-2. Go to Part 3 and fill out Form 22A–2.

Part 3: Sign Below

By signing here, I declare under penalty of perjury that the information on this statement and in any attachments is true and correct.

______ ______Signature of Debtor 1 Signature of Debtor 2

Date ______Date ______MM / DD / YYYY MM / DD / YYYY

If you checked line 14a, do NOT fill out or file Form 22A–2.

If you checked line 14b, fill out Form 22A–2 and file it with this form. ¯¯¯¯¯

Official Form B 22A1 Chapter 7 Statement of Your Current Monthly Income page 2 Fill in this information to identify your case:

Debtor 1 ______First Name Middle Name Last Name Debtor 2 ______(Spouse, if filing) First Name Middle Name Last Name

United States Bankruptcy Court for the: ______District of ______

Case number ______(If known)  Check if this is an amended filing

OFFICIAL FORM B 22A1 SUPP Statement of Exemption from Presumption of Abuse Under § 707(b)(2) 12/14

File this supplement together with Chapter 7 Statement of Your Current Monthly Income (Official Form 22A-1), if you believe that you are exempted from a presumption of abuse. Be as complete and accurate as possible. If two married people are filing together, and any of the exclusions in this statement applies to only one of you, the other person should complete a separate Form 22A-1 if you believe that this is required by 11 U.S.C. § 707(b)(2)(C).

Part 1: Identify the Kind of Debts You Have

1. Are your debts primarily consumer debts? Consumer debts are defined in 11 U.S.C. § 101(8) as “incurred by an individual primarily for a personal, family, or household purpose.” Make sure that your answer is consistent with the “Nature of Debts” box on page 1 of the Voluntary Petition (Official Form 1).

 No. Go to Form 22A-1; on the top of page 1 of that form, check box 1, There is no presumption of abuse, and sign Part 3. Then submit this supplement with the signed Form 22A-1.  Yes. Go to Part 2.

Part 2: Determine Whether Military Service Provisions Apply to You

2. Are you a disabled veteran (as defined in 38 U.S.C. § 3741(1))?  No. Go to line 3.  Yes. Did you incur debts mostly while you were on active duty or while you were performing a homeland defense activity? 10 U.S.C. § 101(d)(1)); 32 U.S.C. § 901(1).

 No. Go to line 3.  Yes. Go to Form 22A-1; on the top of page 1 of that form, check box 1, There is no presumption of abuse, and sign Part 3. Then submit this supplement with the signed Form 22A-1. 3. Are you or have you been a Reservist or member of the National Guard? No. Complete Form 22A-1. Do not submit this supplement. Yes. Were you called to active duty or did you perform a homeland defense activity? 10 U.S.C. § 101(d)(1); 32 U.S.C. § 901(1)  No. Complete Form 22A-1. Do not submit this supplement.  Yes. Check any one of the following categories that applies:

 I was called to active duty after September 11, 2001, for at least If you checked one of the categories to the left, go to 90 days and remain on active duty. Form 22A-1. On the top of page 1 of Form 22A-1, check box 3, The Means Test does not apply now, and sign I was called to active duty after September 11, 2001, for at least  Part 3. Then submit this supplement with the signed 90 days and was released from active duty on ______, Form 22A-1. You are not required to fill out the rest of which is fewer than 540 days before I file this bankruptcy case. Official Form 22A-1 during the exclusion period. The  I am performing a homeland defense activity for at least 90 days. exclusion period means the time you are on active duty or are performing a homeland defense activity, and for  I performed a homeland defense activity for at least 90 days, 540 days afterward. 11 U.S.C. § 707(b)(2)(D)(ii). ending on ______, which is fewer than 540 days before If your exclusion period ends before your case is closed, I file this bankruptcy case. you may have to file an amended form later.

Official Form B 22A1 Supp Statement of Exemption from Presumption of Abuse Under § 707(b)(2) page 1

Check the appropriate box as directed in Fill in this information to identify your case: lines 40 or 42:

Debtor 1 ______According to the calculations required by this First Name Middle Name Last Name Statement: Debtor 2 ______(Spouse, if filing) First Name Middle Name Last Name  1. There is no presumption of abuse.

United States Bankruptcy Court for the: ______District of ______ 2. There is a presumption of abuse. (State) Case number ______(If known)  Check if this is an amended filing

Official Form B 22A2 Chapter 7 Means Test Calculation 12/14 To fill out this form, you will need your completed copy of Chapter 7 Statement of Your Current Monthly Income (Official Form 22A-1).

Be as complete and accurate as possible. If two married people are filing together, both are equally responsible for being accurate. If more space is needed, attach a separate sheet to this form. Include the line number to which the additional information applies. On the top of any additional pages, write your name and case number (if known).

Part 1: Determine Your Adjusted Income

1. Copy your total current monthly income...... Copy line 11 from Official Form 22A-1 here ...... 1. $______

2. Did you fill out Column B in Part 1 of Form 22A–1?

 No. Fill in $0 on line 3d.

 Yes. Is your spouse filing with you?

 No. Go to line 3.  Yes. Fill in $0 on line 3d.

3. Adjust your current monthly income by subtracting any part of your spouse’s income not used to pay for the household expenses of you or your dependents. Follow these steps: On line 11, Column B of Form 22A–1, was any amount of the income you reported for your spouse NOT regularly used for the household expenses of you or your dependents?

 No. Fill in 0 on line 3d. Yes. Fill in the information below:

State each purpose for which the income was used Fill in the amount you For example, the income is used to pay your spouse’s tax debt or to support are subtracting from your spouse’s income people other than you or your dependents

3a. ______$______

3b. ______$______

3c. ______+ $______

3d. Total. Add lines 3a, 3b, and 3c...... $______Copy total here  ...... 3d. ─ $______

4. Adjust your current monthly income. Subtract line 3d from line 1. $______

Official Form B 22A2 Chapter 7 Means Test Calculation page 1 Debtor 1 ______Case number (if known)______First Name Middle Name Last Name

Part 2: Calculate Your Deductions from Your Income

The Internal Revenue Service (IRS) issues National and Local Standards for certain expense amounts. Use these amounts to answer the questions in lines 6-15. To find the IRS standards, go online using the link specified in the separate instructions for this form. This information may also be available at the bankruptcy clerk’s office.

Deduct the expense amounts set out in lines 6-15 regardless of your actual expense. In later parts of the form, you will use some of your actual expenses if they are higher than the standards. Do not deduct any amounts that you subtracted from your spouse’s income in line 3 and do not deduct any operating expenses that you subtracted from income in lines 5 and 6 of Form 22A–1.

If your expenses differ from month to month, enter the average expense.

Whenever this part of the form refers to you, it means both you and your spouse if Column B of Form 22A–1 is filled in.

5. The number of people used in determining your deductions from income

Fill in the number of people who could be claimed as exemptions on your federal income tax return, plus the number of any additional dependents whom you support. This number may be different from the number of people in your household.

National Standards You must use the IRS National Standards to answer the questions in lines 6-7.

6. Food, clothing, and other items: Using the number of people you entered in line 5 and the IRS National Standards, fill in the dollar amount for food, clothing, and other items. $______

7. Out-of-pocket health care allowance: Using the number of people you entered in line 5 and the IRS National Standards, fill in the dollar amount for out-of-pocket health care. The number of people is split into two categoriespeople who are under 65 and people who are 65 or olderbecause older people have a higher IRS allowance for health care costs. If your actual expenses are higher than this IRS amount, you may deduct the additional amount on line 22.

People who are under 65 years of age

7a. Out-of-pocket health care allowance per person $______

7b. Number of people who are under 65 X ______

Copy line 7c 7c. Subtotal. Multiply line 7a by line 7b. $______$______here ......

People who are 65 years of age or older

7d. Out-of-pocket health care allowance per person $______

7e. Number of people who are 65 or older X ______

Copy line 7f 7f. Subtotal. Multiply line 7d by line 7e. $______here ...... + $______

Copy total here 7g. Total. Add lines 7c and 7f...... $______...... 7g. $______

Official Form B 22A2 Chapter 7 Means Test Calculation page 2 Debtor 1 ______Case number (if known)______First Name Middle Name Last Name

Local Standards You must use the IRS Local Standards to answer the questions in lines 8-15.

Based on information from the IRS, the U.S. Trustee Program has divided the IRS Local Standard for housing for bankruptcy purposes into two parts:  Housing and utilities – Insurance and operating expenses  Housing and utilities – Mortgage or rent expenses

To answer the questions in lines 8-9, use the U.S. Trustee Program chart. To find the chart, go online using the link specified in the separate instructions for this form. This chart may also be available at the bankruptcy clerk’s office.

8. Housing and utilities – Insurance and operating expenses: Using the number of people you entered in line 5, fill in the dollar amount listed for your county for insurance and operating expenses. $______

9. Housing and utilities – Mortgage or rent expenses:

9a. Using the number of people you entered in line 5, fill in the dollar amount listed for your county for mortgage or rent expenses. 9a. $______

9b. Total average monthly payment for all mortgages and other debts secured by your home.

To calculate the total average monthly payment, add all amounts that are contractually due to each secured creditor in the 60 months after you file for bankruptcy. Then divide by 60.

Name of the creditor Average monthly payment

______$______

______ $______

______ + $______

Copy line 9b Repeat this 9b. Total average monthly payment $______─ $______amount on here line 33a.

9c. Net mortgage or rent expense. Subtract line 9b (total average monthly payment) from line 9a (mortgage or Copy rent expense). If this amount is less than $0, enter $0. 9c. $______line 9c $______here

10. If you claim that the U.S. Trustee Program’s division of the IRS Local Standard for housing is incorrect and affects $______the calculation of your monthly expenses, fill in any additional amount you claim.

Explain ______why: ______

11. Local transportation expenses: Check the number of vehicles for which you claim an ownership or operating expense.

 0. Go to line 14. 1. Go to line 12. 2 or more. Go to line 12.

12. Vehicle operation expense: Using the IRS Local Standards and the number of vehicles for which you claim the operating expenses, fill in the Operating Costs that apply for your Census region or metropolitan statistical area. $______

Official Form B 22A2 Chapter 7 Means Test Calculation page 3 Debtor 1 ______Case number (if known)______First Name Middle Name Last Name

13. Vehicle ownership or lease expense: Using the IRS Local Standards, calculate the net ownership or lease expense for each vehicle below. You may not claim the expense if you do not make any loan or lease payments on the vehicle. In addition, you may not claim the expense for more than two vehicles.

Vehicle 1 Describe Vehicle 1: ______

13a. Ownership or leasing costs using IRS Local Standard 13a. $______

13b. Average monthly payment for all debts secured by Vehicle 1. Do not include costs for leased vehicles. To calculate the average monthly payment here and on line 13e, add all

amounts that are contractually due to each secured creditor in the 60 months after you filed for bankruptcy. Then divide by 60.

Name of each creditor for Vehicle 1 Average monthly payment

Copy 13b Repeat this ______$______─ $______amount on here line 33b.

Copy net 13c. Net Vehicle 1 ownership or lease expense Vehicle 1 Subtract line 13b from line 13a. If this amount is less than $0, enter $0. 13c. $______expense here .....  $______

Vehicle 2 Describe Vehicle 2: ______

______

13d. Ownership or leasing costs using IRS Local Standard 13d. $______

13e. Average monthly payment for all debts secured by Vehicle 2. Do not include costs for leased vehicles.

Name of each creditor for Vehicle 2 Average monthly payment

Copy 13e Repeat this ______$______─ $______amount on here line 33c. Copy net 13f. Net Vehicle 2 ownership or lease expense Vehicle 2 Subtract line 13e from 13d. If this amount is less than $0, enter $0. 13f. $______expense $______here ..... 

14. Public transportation expense: If you claimed 0 vehicles in line 11, using the IRS Local Standards, fill in the Public Transportation expense allowance regardless of whether you use public transportation. $______

15. Additional public transportation expense: If you claimed 1 or more vehicles in line 11 and if you claim that you may also deduct a public transportation expense, you may fill in what you believe is the appropriate expense, but you may not claim more than the IRS Local Standard for Public Transportation. $______

Official Form B 22A2 Chapter 7 Means Test Calculation page 4 Debtor 1 ______Case number (if known)______First Name Middle Name Last Name

Other Necessary Expenses In addition to the expense deductions listed above, you are allowed your monthly expenses for the following IRS categories.

16. Taxes: The total monthly amount that you will actually owe for federal, state and local taxes, such as income taxes, self- employment taxes, social security taxes, and Medicare taxes. You may include the monthly amount withheld from your $______pay for these taxes. However, if you expect to receive a tax refund, you must divide the expected refund by 12 and subtract that number from the total monthly amount that is withheld to pay for taxes.

Do not include real estate, sales, or use taxes.

17. Involuntary deductions: The total monthly payroll deductions that your job requires, such as retirement contributions, union dues, and uniform costs. Do not include amounts that are not required by your job, such as voluntary 401(k) contributions or payroll savings. $______

18. Life insurance: The total monthly premiums that you pay for your own term life insurance. If two married people are filing together, include payments that you make for your spouse’s term life insurance. Do not include premiums for life insurance on your dependents, for a non-filing spouse’s life insurance, or for any form of life insurance other than term. $______

19. Court-ordered payments: The total monthly amount that you pay as required by the order of a court or administrative agency, such as spousal or child support payments. $______Do not include payments on past due obligations for spousal or child support. You will list these obligations in line 35.

20. Education: The total monthly amount that you pay for education that is either required:  as a condition for your job, or  for your physically or mentally challenged dependent child if no public education is available for similar services. $______

21. Childcare: The total monthly amount that you pay for childcare, such as babysitting, daycare, nursery, and preschool. Do not include payments for any elementary or secondary school education. $______

22. Additional health care expenses, excluding insurance costs: The monthly amount that you pay for health care that is required for the health and welfare of you or your dependents and that is not reimbursed by insurance or paid by a health savings account. Include only the amount that is more than the total entered in line 7. Payments for health insurance or health savings accounts should be listed only in line 25. $______

23. Optional telephones and telephone services: The total monthly amount that you pay for telecommunication services for you and your dependents, such as pagers, call waiting, caller identification, special long distance, or business cell phone service, to the extent necessary for your health and welfare or that of your dependents or for the production of income, if it + $______is not reimbursed by your employer. Do not include payments for basic home telephone, internet and cell phone service. Do not include self-employment expenses, such as those reported on line 5 of Official Form 22A-1, or any amount you previously deducted.

24. Add all of the expenses allowed under the IRS expense allowances. $______Add lines 6 through 23.

Official Form B 22A2 Chapter 7 Means Test Calculation page 5 Debtor 1 ______Case number (if known)______First Name Middle Name Last Name

Additional Expense Deductions These are additional deductions allowed by the Means Test. Note: Do not include any expense allowances listed in lines 6-24.

25. Health insurance, disability insurance, and health savings account expenses. The monthly expenses for health insurance, disability insurance, and health savings accounts that are reasonably necessary for yourself, your spouse, or your dependents.

Health insurance $______

Disability insurance $______

Health savings account + $______

Total $______Copy total here ...... $______

Do you actually spend this total amount?

 No. How much do you actually spend? $______ Yes

26. Continued contributions to the care of household or family members. The actual monthly expenses that you will $______continue to pay for the reasonable and necessary care and support of an elderly, chronically ill, or disabled member of your household or member of your immediate family who is unable to pay for such expenses.

27. Protection against family violence. The reasonably necessary monthly expenses that you incur to maintain the safety of you and your family under the Family Violence Prevention and Services Act or other federal laws that apply. $______By law, the court must keep the nature of these expenses confidential.

28. Additional home energy costs. Your home energy costs are included in your non-mortgage housing and utilities allowance on line 8. If you believe that you have home energy costs that are more than the home energy costs included in the non-mortgage housing and utilities allowance, then fill in the excess amount of home energy costs. $______You must give your case trustee documentation of your actual expenses, and you must show that the additional amount claimed is reasonable and necessary.

29. Education expenses for dependent children who are younger than 18. The monthly expenses (not more than $156.25* per child) that you pay for your dependent children who are younger than 18 years old to attend a private or public elementary or secondary school. $______You must give your case trustee documentation of your actual expenses, and you must explain why the amount claimed is reasonable and necessary and not already accounted for in lines 6-23. * Subject to adjustment on 4/01/16, and every 3 years after that for cases begun on or after the date of adjustment.

30. Additional food and clothing expense. The monthly amount by which your actual food and clothing expenses are $______higher than the combined food and clothing allowances in the IRS National Standards. That amount cannot be more than 5% of the food and clothing allowances in the IRS National Standards. To find a chart showing the maximum additional allowance, go online using the link specified in the separate instructions for this form. This chart may also be available at the bankruptcy clerk’s office. You must show that the additional amount claimed is reasonable and necessary.

31. Continuing charitable contributions. The amount that you will continue to contribute in the form of cash or financial $______instruments to a religious or charitable organization. 26 U.S.C. § 170(c)(1)-(2).

32. Add all of the additional expense deductions. $______Add lines 25 through 31.

Official Form B 22A2 Chapter 7 Means Test Calculation page 6 Debtor 1 ______Case number (if known)______First Name Middle Name Last Name

Deductions for Debt Payment

33. For debts that are secured by an interest in property that you own, including home mortgages, vehicle loans, and other secured debt, fill in lines 33a through 33g.

To calculate the total average monthly payment, add all amounts that are contractually due to each secured creditor in the 60 months after you file for bankruptcy. Then divide by 60.

Average monthly payment Mortgages on your home:

33a. Copy line 9b here ......  $______

Loans on your first two vehicles: 

33b. Copy line 13b here......  $______

33c. Copy line 13e here......  $______ Name of each creditor for other secured debt Identify property that secures Does payment the debt include taxes or insurance?

 No 33d. ______$______ Yes

 No 33e. ______$______ Yes

 No 33f. ______+ $______ Yes

Copy total 33g. Total average monthly payment. Add lines 33a through 33f...... $______$______here

34. Are any debts that you listed in line 33 secured by your primary residence, a vehicle, or other property necessary for your support or the support of your dependents?

 No. Go to line 35.  Yes. State any amount that you must pay to a creditor, in addition to the payments listed in line 33, to keep possession of your property (called the cure amount). Next, divide by 60 and fill in the information below.

Name of the creditor Identify property that Total cure Monthly cure secures the debt amount amount

______$______÷ 60 = $______

______$______÷ 60 = + $______

Copy total Total $______$______here

35. Do you owe any priority claims such as a priority tax, child support, or alimony ─ that are past due as of the filing date of your bankruptcy case? 11 U.S.C. § 507.

 No. Go to line 36.  Yes. Fill in the total amount of all of these priority claims. Do not include current or ongoing priority claims, such as those you listed in line 19.

Total amount of all past-due priority claims ...... $______÷ 60 = $______

Official Form B 22A2 Chapter 7 Means Test Calculation page 7 Debtor 1 ______Case number (if known)______First Name Middle Name Last Name

36. Are you eligible to file a case under Chapter 13? 11 U.S.C. § 109(e). For more information, go online using the link for Bankruptcy Basics specified in the separate instructions for this form. Bankruptcy Basics may also be available at the bankruptcy clerk’s office.

 No. Go to line 37. Yes. Fill in the following information. 

Projected monthly plan payment if you were filing under Chapter 13 $______

Current multiplier for your district as stated on the list issued by the Administrative Office of the United States Courts (for districts in Alabama and North Carolina) or by the Executive Office for United States Trustees (for all other districts). x ______To find a list of district multipliers that includes your district, go online using the link specified in the separate instructions for this form. This list may also be available at the bankruptcy clerk’s office. Copy total Average monthly administrative expense if you were filing under Chapter 13 $______$______here

37. Add all of the deductions for debt payment. $______Add lines 33g through 36.

Total Deductions from Income

38. Add all of the allowed deductions.

Copy line 24, All of the expenses allowed under IRS $______expense allowances ......

Copy line 32, All of the additional expense deductions ...... $______

Copy line 37, All of the deductions for debt payment ...... + $______

Total deductions $______Copy total here  $______

Part 3: Determine Whether There Is a Presumption of Abuse

39. Calculate monthly disposable income for 60 months

39a. Copy line 4, adjusted current monthly income ..... $______

39b. Copy line 38, Total deductions...... − $______

39c. Monthly disposable income. 11 U.S.C. § 707(b)(2). Copy line $______$______39c here Subtract line 39b from line 39a.

For the next 60 months (5 years) ...... x 60

Copy 39d. Total. Multiply line 39c by 60...... 39d. $______line 39d here $______

40. Find out whether there is a presumption of abuse. Check the box that applies:

 The line 39d is less than $7,475*. On the top of page 1 of this form, check box 1, There is no presumption of abuse. Go to Part 5.

 The line 39d is more than $12,475*. On the top of page 1 of this form, check box 2, There is a presumption of abuse. You may fill out Part 4 if you claim special circumstances. Then go to Part 5.

 The line 39d is at least $7,475*, but not more than $12,475*. Go to line 41. * Subject to adjustment on 4/01/16, and every 3 years after that for cases filed on or after the date of adjustment.

Official Form B 22A2 Chapter 7 Means Test Calculation page 8 Debtor 1 ______Case number (if known)______First Name Middle Name Last Name

41. 41a. Fill in the amount of your total nonpriority unsecured debt. If you filled out A Summary of Your Assets and Liabilities and Certain Statistical Information Schedules (Official Form 6), you may refer to line 5 on that form. 41a. $______x .25

41b. 25% of your total nonpriority unsecured debt. 11 U.S.C. § 707(b)(2)(A)(i)(I) $______Copy Multiply line 41a by 0.25. $______here

42. Determine whether the income you have left over after subtracting all allowed deductions is enough to pay 25% of your unsecured, nonpriority debt. Check the box that applies:  Line 39d is less than line 41b. On the top of page 1 of this form, check box 1, There is no presumption of abuse. Go to Part 5.

 Line 39d is equal to or more than line 41b. On the top of page 1 of this form, check box 2, There is a presumption of abuse. You may fill out Part 4 if you claim special circumstances. Then go to Part 5.

Part 4: Give Details About Special Circumstances

43. Do you have any special circumstances that justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative? 11 U.S.C. § 707(b)(2)(B).

 No. Go to Part 5.  Yes. Fill in the following information. All figures should reflect your average monthly expense or income adjustment for each item. You may include expenses you listed in line 25.

You must give a detailed explanation of the special circumstances that make the expenses or income adjustments necessary and reasonable. You must also give your case trustee documentation of your actual expenses or income adjustments.

Average monthly expense Give a detailed explanation of the special circumstances or income adjustment

______$______

Part 5: Sign Below

By signing here, I declare under penalty of perjury that the information on this statement and in any attachments is true and correct.

____________Signature of Debtor 1 Signature of Debtor 2

Date ______Date ______MM / DD / YYYY MM / DD / YYYY

Official Form B 22A2 Chapter 7 Means Test Calculation page 9