Schedule I (income), Schedule J (expenses) and the Statement of Financial Affairs (SOFA) tell the story of the debtor's finances, now and in the recent past. Trustees read them closely, and they are where inconsistencies show up. Here is where the gaps usually appear.
Schedule I: income
- Use the right pay figures. Gross and net, current and averaged. A single unusual paycheck can distort the number. Check the pay records against what the client told you.
- Include every source. Part-time work, gig and cash income, rental income, support received, and household contributions can all belong on the schedule.
- Self-employed debtors need a clear business income and expense picture. Gather profit-and-loss information, not only tax returns.
- Reconcile with the means test. The two documents measure income differently, but the difference should be explainable. See the means test in plain English.
Schedule J: expenses
- Be realistic. A budget that leaves a large surplus draws questions, and so does one that shows spending the debtor clearly cannot afford. Go through categories with the client rather than starting from a template.
- Expenses should match the file. Rent or mortgage consistent with the lease or statement, insurance consistent with the policies, and car payments consistent with the loan documents.
- Watch for omitted items, such as irregular costs like medical, school or annual insurance payments, which are better averaged into a monthly figure.
- In Chapter 13, the budget affects the plan payment, so the numbers need extra care. See Chapter 13 plan basics.
Statement of Financial Affairs: the recent history
The SOFA asks about the debtor's financial life in the period before filing. Time frames vary by question, and the official form is the authority, so check the current version. In general it covers:
- Income from jobs and other sources in recent years.
- Payments to creditors in the period before filing, with a longer look-back for payments to insiders such as relatives.
- Lawsuits, garnishments, repossessions and foreclosures.
- Gifts, charitable contributions and transfers of property.
- Losses from fire, theft or gambling.
- Payments related to bankruptcy, including fees paid to attorneys and preparers.
- Closed accounts, safe deposit boxes and storage units.
- Business information, where the debtor has had one.
Where the gaps usually are
- Payments to relatives. A repaid loan to a family member is an insider payment, and clients often forget to mention it. Ask directly.
- Transfers and sales. A car sold to a cousin or a gift of property in recent years belongs here even if it seemed unimportant.
- Closed accounts. The bank statements in the file often show an account that the client never listed.
- Prior lawsuits. Old debt collection cases and judgments that the client has put out of mind.
- Gaps between documents. A deposit with no source, or payments to someone who appears nowhere else in the file.
Bank statements are your best tool: read them for anything the questionnaire did not mention, and ask the client about it. The documents a debtor must gather are what make this possible.
Flag, do not guess
When something is unclear, list it for the attorney with the question to ask the client. An accurate petition with flagged questions is far better than a tidy petition built on an assumption. The attorney's review checklist covers the same ground from the other side of the desk.
Where this leads
Preparers who deliver clean, consistent files are the ones attorneys keep. Join NAVBA for a directory listing and the other member benefits, or look at certification to demonstrate your skills.
This article is general information about bankruptcy practice, not legal advice. Local rules, trustee preferences and state law vary, so confirm current requirements for your jurisdiction.
