At this meeting we get facts and figures from the people sitting across the desk from us. This fact gathering is an essential tool that allows me to advise clients about the best course to follow to get whatever financial issues are present. And I tell the people I’m meeting with for the first time “after the intake is completed, we’ll talk about what happens when filing bankruptcy - I’ll take you on a guided tour of how bankruptcy “works.” And that process - how bankruptcy works - is what I will write about this week.
The easiest, and I think the best way to How MN Bankruptcy Works is to understand that the purpose of the bankruptcy law is to treat creditors fairly and to allow debtors to live with dignity. That’s the simple concept that underpins the law contained in the bankruptcy code and in the various other laws that relate to bankruptcy. So how does the law go about to meet these guiding principles?
It all starts with the bankruptcy petition, schedules and statements that are filed in every bankruptcy case. In order to meet the goal of fairness and dignity it is absolutely essential that the information contained in a bankruptcy petition and schedules be accurate and complete. So the very first step in any MN Bankruptcy case is to gather information from the debtor, and any other necessary sources, that will assist the attorney representing the debtor in preparing accurate and complete court documents. The intake interview helps a lot with the task of putting this information together. After the necessary information is gathered, the next task is to draft the papers that make up the bankruptcy filing and then to check and re-check the information to make sure it is accurate and complete. The necessary information is then “packaged” into the paperwork that comprises the bankruptcy petition, schedules and statements.
The bankruptcy petition contains identifying information about the debtor: the name, address, and a (masked) social security number to assist everyone in the bankruptcy “system” in understanding precisely who is filing the case. To further assist in identification, the bankruptcy debtor also includes any other names used in the eight years prior to the case being filed, as well as the name and tax id number of any businesses operated by the debtor, and whether that business was a sole proprietorship, partnership, LLC or corporation. The petition will also list the name, address and phone number of the attorney representing the debtor.
The petition will also identify the chapter that the debtor is filing under - at Kain & Scott the two chapters we file are Chapter 7 and Chapter 13. And in a Chapter 7 case, the petition will indicate whether the debtor expects that at least some of his property will be non-exempt and thus subject to liquidation by the Chapter 7 trustee.
Additionally, the petition will contain estimates of the value of the property owned by the debtor and an estimate of how much debt is owed by the debtor to creditors. There will be a breakdown of assets - real and personal property, and a breakdown of categories of creditors - priority, secured and unsecured. All of this is done so that everyone in the bankruptcy system knows who is filing bankruptcy, who represents the debtor, what chapter the case is filed under and what type of property and debt we’re dealing with. And, most importantly, the petition contains a “petition:” the request by the bankruptcy debtor for protection of the bankruptcy law.
Besides the petition, the bankruptcy papers contains schedules. A bankruptcy case contains a number of schedules, labelled alphabetically from Schedule A/B through Schedule J. The schedules identify the property that is owned by the debtor, and classifies that property into two categories: real and personal property. The debtor estimates the value of the property on the schedules. The schedules also list the debt owed by the debtor and, just as is done with property, the debt is classified as either secured, priority or unsecured debt.
The schedules also list whether the debtor has any co-signed debt and whether the debtor is obligated on any leases - such as car leases or residential or commercial leases. The debtor also has to fill out schedules showing detailed income information - gross income less deductions and detailed expense information - showing the debtor’s reasonable and necessary monthly living expenses for her family.
All of the schedules I wrote about, above, are required to meet the goal of treating creditors fairly. Any bankruptcy debtor is legally required to fully disclose property, debt, income and expenses so that the debtor’s creditors can analyze and understand the debtor’s financial provision. But there’s one more schedule to talk about, and that schedule serves the goal of allowing bankruptcy debtors to live with dignity.
That schedule is for property that the debtor owns in which the debtor claims an exemption. In Minnesota bankruptcy cases, the debtor has the advantage of Minnesota being an “opt-in” state. That is, the Minnesota legislature, along with 14 other of the 49 other states, chose to allow bankruptcy debtors to use either the federal Bankruptcy Code or Minnesota state law to protect property - that is, to claim all or part of the property as exempt in a bankruptcy case. Exempt property cannot be taken away from the bankruptcy debtor by a bankruptcy trustee. And the property that either Minnesota state law or the Bankruptcy Code exempts is designed so that debtors can retain the property they own that they need to provide for their families and to maintain employment. It’s a critical part of the bankruptcy process, and without exemptions, filing bankruptcy would be almost pointless for the vast majority of people with financial problems.
That’s enough for this week - next week I’ll continue writing about how MN Bankruptcy “works.”