How to Complete the Statement of Financial Affairs for Individuals Filing for Bankruptcy
On the Statement of Financial Affairs for Individuals Filing for Bankruptcy, you provide information to the bankruptcy court about all of your financial dealings.
When you file for Chapter 7 or Chapter 13 bankruptcy, you must complete forms that provide the court with information about your financial situation, such as your income and expenses, the amount of your debt, and the type of property you own. One of these forms, called the Statement of Financial Affairs for Individuals Filing for Bankruptcy, tells the bankruptcy trustee about your financial transactions up to ten years prior to filing, depending on the transaction type. When appropriate, the trustee uses this information to rescind (undo) certain transactions and to distribute any recovered money to your creditors.
Information You Must Provide on the Statement of Financial Affairs
While the statement of financial affairs form is lengthy, filling it out is fairly simple to do. Each section provides detailed, easy-to-understand instructions to help you answer questions properly. The sections are organized by topic, so, for example, you’ll list repossessions and foreclosures in one area, and closed banking and financial accounts in another.
Because it’s unlikely that you’ve been involved in every type of reportable transaction, you won’t need to fill out all of the sections. Each type of transaction has a different reporting period. For example, you’ll list all bank accounts you closed a year prior to filing bankruptcy. You have to go back only 90 days when reporting creditor payments exceeding $600. The average look back period is two years.
You’ll list current information about:
- your marital status
- property in your possession that’s owned by someone else (you’re borrowing or storing it), and
- any environmental issues with your property.
You’ll provide a year’s worth of information about:
- payments or transfers to family members, business partners, or other “insiders”
- garnishments, lawsuits, and other legal proceedings you’ve been a part of
- repossessions and foreclosures
- attachments, seizures, set offs, or levies against your property
- losses you've suffered due to an accident, fire, theft, disaster, or gambling
- money paid for help with your debt problems, including to debt negotiators, document preparers, and lawyers
- closed financial accounts, and
- safe deposit boxes and storage units.
You’ll need two years’ worth of information about:
- your income from all sources, regardless of the taxable status (as well as current, year-to-date amounts)
- gifts given to any one person or charity totaling over $600, and
- all transferred property (meaning sold or traded).
You must also report:
- where you’ve lived for the last three years
- any businesses you’ve owned during the last six years
- whether you were a part of a married couple living in a community property state during the last eight years, and
- any money deposited into a self-settled trust within the last ten years.
(To learn about the other forms you must file, see Completing the Bankruptcy Forms.)
What Does the Trustee Do With This Information?
In bankruptcy, it’s often said that, “You can’t favor one creditor over another,” which means that all creditors must be paid in the order established by bankruptcy law. For example, debts such as taxes and child support get paid before credit card bills. (To learn about the payment of debt in bankruptcy, see Can I Choose Which Creditors Get Paid First in My Chapter 13 Plan?)
When you choose to pay one creditor instead of another, you run the risk of making a “preferential payment.” The bankruptcy court strongly frowns on preferential payments because each creditor must get a fair share—as defined by bankruptcy law—of the money pie. The tricky part is that the pie-sharing period often starts years before you ever considered filing for bankruptcy.
The trustee unwinds old preferential payments and distributes the money to creditors
As a preferential payment investigator of sorts, the trustee knows that you might have sold a car, equipment, or jewelry for less than the fair market value when the rent came due. Or that you might have paid off a debt you owed your brother when there wasn’t enough money to go around. Leaving certain creditors in the lurch when strapped for cash happens innocently enough, so you’re unlikely to get in trouble. Even so, these types of transactions unfairly impact some creditors, and the trustee has the power to set things straight.
That’s where the statement of financial affairs comes in. The trustee reviews your answers, hoping to uncover preferential payments. While finding preferential payments seldom happens, it can sting when it does. For example, if you paid your brother $1,000 to repay a verbal loan shortly before filing for bankruptcy, the trustee will make your brother return the money and will divide it among your creditors. (You might stand a better chance if you have a promissory note documenting the loan.) Reviewing the lists above will give you further insight into potential preferential payments.
The trustee checks for signs of fraud
When you owe money, you have an obligation to pay it back, and intentionally trying to defraud your creditors—whether before bankruptcy or by filing bankruptcy—can get you into serious legal trouble. The trustee uses the statement of financial affairs to sniff out fraud, for example, by researching your closed bank accounts. If you had a large bank balance at the time you closed it, the trustee will ask you for documentation showing where the funds went—and if you can’t provide the requested paper trail, a bankruptcy judge might be inclined to assess a fine of up to $250,000, 20 years in prison, or both.
Where to Get the Statement of Financial Affairs
You can download a fillable copy of the statement of financial affairs on the U.S Courts website at www.uscourts.gov/forms/bankruptcy-forms. To learn more about getting the official forms, see The Bankruptcy Forms: Getting Started.