Because we are at the end of a month, and I am running into some bankruptcy petitions that are expiring, I felt it an appropriate time to write an article about this subject.
For starters, does a bankruptcy petition really expire? Yes…sort of.
What this is referring to is the fact that a bankruptcy petition is a snapshot in time, of the debtor’s financial situation.
Schedule I reflects the current or most recent income (or lack thereof), and the Means Test (Form 22a in a Chapter 7 or Form 22c in a Chapter 13), reflects the debtors income for the last six FULL months.
Once a bankruptcy petition is prepared to show this financial picture, it must be filed with the court before the end of the month it is prepared in. Why? Because if it isn’t filed by the end of the month and the calendar flips over to a new month, the debtor’s financial picture may have changed, and the petition must be updated accordingly so that the Means Test still shows the last six full months of income.
This rolling over to a new month will have caused the sixth month to have rolled off of the six month snapshot, as it becomes the seventh month, and the month that just passed now becomes the most recent month that needs to be reported in the petition.
Furthermore, the income on Schedule I needs to reflect the most recent income, and should be updated with any changes shown on the debtor’s most recent pay stub or business profit and loss statement (P&L).
Once the data in the petition is updated, it is then again ready to file, and you have until the end of the new month to get it filed, before it expires again. I refer to this process of updating the information listed in the petition in order to be current as “Refreshing” the petition. I have also heard this referred to as “bringing the petition current”, or the “Means Test expiring”.
The need to refresh petitions is something that would be nice to avoid, but there are a number of situations and unforeseen circumstances that can lead to this, such as the debtor not providing needed information in a timely fashion (this is the most common), the debtor getting cold feet, the attorney having the client wait to file for some reason, or a myriad of other things.
Simply updating Schedule I and the Means test may not be enough though. There are other things within the petition that could “expire”, or that may need to be updated as a result of rolling over into a new month, including arrearages on liens, and payments to creditors.
Keep in mind too, that with updated information, there may be changes, which could change other things in a petition, such as the amount of disposable monthly income for a Chapter 13 Plan payment.
The list below can serve as a checklist of things you will want to verify, and update if necessary, when refreshing an expired bankruptcy petition:
1. Schedule I
a. Income and deductions must be updated to reflect current pay stubs or business profit and loss statements (P&L’s)
2. Means Test
a. Income must be updated to include any months that have elapsed since previously entered
b. Double-check other items for changes, such as costs of insurance, 401k loan payments or contributions, etc.
3. Arrears on all Secured Property
a. Are the items previously documented as being in arrears, now additional months in arrears? Update this (Creditor tab)
b. Update the cure amount – # of months in arrears x Mo Pmt (Form 22 Means Test tab)
c. Are any previously current liens now in arrears? Document this (Creditor tab and Form 22 Means Test tab)
4. Form 7. Statement of Financial Affairs
a. Line 3. Payments to Creditors
b. The dates and payments to creditors will need to be updated, as well as the Amt. Still Owing
5. Re-Balancing Schedule I and &, and updating the Chapter 13 Plan
a. Because you are inserting new income information, it is possible that Schedules I & J need to be rebalanced, or that the Chapter 13 Plan (in a 13) needs to be re-calculated due to the change
Below are some TIPS on avoiding and handling expired bankruptcy petitions:
* Remind attorney a week before the end of the month that the Means Test will be expiring, so that he/she has the opportunity to address the situation
* If you end up needing to refresh an expired bankruptcy petition, you should charge for your time, as you had already done the initial work, and the circumstances surrounding why the petition expired are likely not under your control, so repeating this work is something you should be paid for.
* When entering income into the Means Test, I recommend entering the income for each month separately, if your software program allows for it. This makes it a lot easier to refresh a petition when all you have to do is add the new month of income as the last month rolls off. This saves you the time of averaging the income by allowing the software to do this work for you.
