"I declare bankruptcy!" - Michael Scott.
When Michael Scott, manager of the Scranton, PA branch of Dunder Mifflin Paper Company ran into debt issues, he figured bankruptcy might be a way out. He was right about his options but he was dead wrong about what it takes. Standing up tall in public and saying that you "declare bankruptcy" ain't gonna cut it. (Michael Scott, if you don't know, is a fictional character from the U.S. version of the television comedy "The Office" & if you need a laugh you might want to check it out).
Unless you live in a smaller community or your local newspaper still lists recent bankruptcy filings, normally no one but your lawyer and your creditors will know that you filed. Trustworthy, confidential support is valuable when you're dealing with debt. But, thankfully, you don't have to declare your intentions to your friends or even your family if you don't want to.
What you really need once you've decided that bankruptcy is the right move for you or your business is a big stack of forms.
In most situations the most valuable thing a lawyer can offer a client is counsel. Clear information and guidance about the law and its impact on whatever the client is facing, delivered with respect for the client's needs and wishes, is a lawyer's most valuable commodity. But a close runner-up in the value department in a bankruptcy law office is an understanding of how to fill out the forms and supporting documents required to start a bankruptcy case.
The stack begins with the bankruptcy "Petition." This is a relatively short (usually three- or four-page) document that contains a series of elections and signature lines. After the Petition and any Exhibits attached to it comes a long set of "Schedules" that are required in every bankruptcy case. Each Schedule deals with a different aspect of your finances, ranging from assets owned, to household income and expenses, to a correct and complete listing of your debts, separated into appropriate categories. The opportunities for mistakes on your schedules -- particularly in how you list and exempt your assets -- are lurking everywhere. This can make filling out the Schedules somewhat stressful.
But let's say you wanted to try your hand at filling out the Petition and Schedules on your own. You can get blank copies of the forms from the bankruptcy court clerk's office in your federal district. The "Petition" and "Schedules" portions of the bankruptcy papers work out to being about ten times longer than a complex tax return. If the case is simple enough, someone might be able to complete the Petition and Schedules with reasonable accuracy in ten to twenty hours. If you're lucky you might not even make any crucial mistakes.
But the stack doesn't stop there. After the Schedules are completed, you have to fill out a series of "Statements" about your finances and your financial history, including the lengthy "Statement of Financial Affairs", which contains a set of compound and sometimes confusing questions. And there are more questions for those with past or current business ventures.
And it doesn't end there. Even if you get through those forms with any sense that you've done it right, you still have to work your way through the bankruptcy means test. This is perhaps the most confusing form of all, because it requires you to know a great deal about both the federal standards used to determine how your money is counted and compared with the applicable median and what the local district court clerks expect to see on the form.
After all of that, you'll still have to compile another set of supporting documents. In most districts this includes properly-redacted pay records, separate signature forms, properly-formatted electronic listings of your creditors, certificates, etc. It's more than enough to make your head spin.
My point? If you haven't figured it out yet, what I'm saying is that if you want to try to prepare your own bankruptcy forms you're in for a world of pain. And even then you're likely to make one or more big mistakes that may force you to pay more money down the road when you need to try to convince a lawyer to help clean up any messes, assuming they are the kind that can be cleaned up. Believe me, lawyers do not like doing this and many won't even touch a case that was filed incorrectly.
I'm obviously biased here but bankruptcy lawyers -- and their well-trained staffs -- are incredibly valuable when it comes to their knowledge and understanding of the complex and lengthy bankruptcy paperwork. Don't believe me? Our District's website provides some helpful information about the forms, which should be enough to give you a sense of the amount of work involved. And if you absolutely, positively cannot afford to pay a lawyer a nickel for help, there are other resources out there where you can start. Because when it comes to filing the proper documents, you really shouldn't go it alone.
Next up in the series: Who files?
Image credit: Carl Malamud