The decision to file a bankruptcy case can be very difficult. Unfortunately, circumstances beyond a consumer’s control may not leave any other options. But while a prospective bankruptcy client may only have one immediate concern – such as a wage garnishment or house foreclosure – a bankruptcy attorney will need to perform a full inquiry into the consumer’s financial affairs to make sure that they are eligible to file a bankruptcy case, and that the bankruptcy petition will be thorough and accurate. In addition, a bankruptcy attorney does not want to file a bankruptcy case to fix one problem, but then create another problem such as jeopardizing the debtor’s assets. For this reason, most bankruptcy attorneys will need to review a wide array of documents as part of the bankruptcy consultation. Frequently, my staff and I are asked why certain documents are necessary, and hopefully this article will offer some explanation.
Income tax returns – there are multiple reasons why a bankruptcy attorney, and eventually the Bankruptcy Court, will want to review a debtor’s income tax returns. First and foremost, an individual seeking protection from the Bankruptcy Court must be up to date in their income tax filings. While having unpaid income taxes will not prevent you from filing a bankruptcy case, unfiled tax returns will prevent you from filing. Additionally, it is important for the attorney to be able to verify a debtor’s income, refund and/or tax liability, and number of dependents. Many times income tax returns are the only way to verify income for individuals who are self – employed. And like any document that will eventually be reviewed by a bankruptcy trustee, an attorney always wants to review it first to make sure that the returns are accurate.
Paystubs/proof of income – like income tax returns, a debtor is required to file their paystubs for the 60 days prior to the filing of their bankruptcy case. This is another way that the court can verify the debtor’s income. Unfortunately, providing a copy of the paycheck by itself, without description of any deductions such as income taxes, health insurance, and retirement, will be insufficient for an attorney to properly counsel a prospective client. Additionally, paystubs may identify assets, such as a 401(k) plan or health savings account, which will need to be protected in a bankruptcy case. If a married debtor is filing individually, it is also necessary to verify the income of the other spouse. Because bankruptcy eligibility will be determined by household income, and not individual income, all sources of income in the household must be identified. Unfortunately, this can sometimes be problematic if the non—filing spouse is not willing to cooperate or provide the information.
Bank statements – just as income tax returns and pay stubs are used to verify income, bank statements can be used to verify expenses. When a bankruptcy petition is filed, the debtor has to accurately list both their income and their expenses. In preparing a budget, a prospective bankruptcy client may overlook certain monthly expenses because they are debited directly from the bank account. Additionally, bank statements can also verify the amount of non – wage income, such as Social Security or retirement income.
Address information for payment of child support and alimony – if a debtor has an obligation to pay child support or alimony, the Bankruptcy Court requires that the person to whom the support is paid be notified of the bankruptcy filing. It does not matter whether the support is current, or delinquent as of the date of filing. Additionally, if a debtor does have a domestic support obligation, they will probably be asked by the bankruptcy attorney to provide a copy of the divorce decree.
Lawsuits, judgments or garnishments – a bankruptcy filing prevents any attempt to collect a debt, which would include an ongoing lawsuit, or any post – judgment collection on the lawsuit such as a wage garnishment. However, it will be essential for the bankruptcy attorney to have a copy of these documents so that the court in which the action is filed can be made aware of the pending bankruptcy case. Additionally, these documents will also provide the names of the attorneys who are prosecuting the action, so that they likewise may be notified of the bankruptcy filing, and file any necessary documents to dismiss the lawsuit or garnishment.
Please keep in mind that this list is not exhaustive, and based on the circumstances of a particular case, there may be additional information that a bankruptcy attorney would wish to review. The more information that is available to a bankruptcy attorney, the better advice and recommendations they can provide to a prospective client. Also keep in mind that attorneys are bound by the duty of confidentiality, and are prohibited from revealing or disclosing any information that they may obtain in communications with a prospective client. And while securing this information in advance of a bankruptcy consultation may be burdensome, it will certainly make the consultation more efficient and productive.