§ 36.23     Statement of Financial Affairs after BAPCPA
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 36.23, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

The Statement of Financial Affairs, Official Form 7, was modified by the Advisory Committee on Bankruptcy Rules in 2005 to reflect several changes in the Bankruptcy Code by BAPCPA.

[2]

The first change is in the instructions and relates to minor children. Debtors are now instructed “do not include the name or address of a minor child . . . indicate payments, transfers and the like to minor children by stating ‘a minor child.’”1 This change to the Statement of Financial Affairs is consistent with 11 U.S.C. § 112, as amended by BAPCPA, which prohibits disclosure of the name of a minor child in a public record.2

[3]

There is a new definition of “in business” for purposes of the Statement of Financial Affairs. The addition is: “An individual debtor also may be ‘in business’ for the purpose of this form if the debtor engages in a trade, business or other activity, other than as an employee, to supplement income from the debtor’s primary employment.”3 There is no citation to any provision of the Bankruptcy Code or Rules either on Official Form 7 or in the Committee Notes to indicate that this change in the definition of “in business” was required by BAPCPA.

[4]

Question 1 on Official Form 7 has been amended to require the debtor to include in income “part-time activities as either an employee or in independent trade or business.” The Committee Note indicates that Question 1 was amended “to specify that, in addition to the income from the debtor’s primary employment, the debtor must include income from part-time activities either as an employee or from self-employment.”4 It is not clear what aspect of BAPCPA inspired this change in the definition of “in business” for purposes of the Statement of Financial Affairs. But in Chapter 13 cases, it is likely that the new definition will require more information from many debtors.

[5]

Chapter 13 debtors often have part-time jobs—sometimes several—and the amendments to the definition of “in business” and to Question 1 seem targeted to require more information from debtors about even minor income-producing activities. These changes are not related to the (unchanged) statutory definition of a Chapter 13 debtor engaged in business—a definition that requires the debtor to be self-employed and to incur trade credit in the production of income.5

[6]

Question 3 has been amended to reflect changes by BAPCPA to the preference recovery power in § 547. BAPCPA amended § 547(b)(7) to prohibit recovery as a preference of “a bona fide payment of a debt for a domestic support obligation.” Question 3 on the Statement of Financial Affairs now instructs the debtor to indicate with an asterisk “any payments that were made to a creditor on account of a domestic support obligation.” Similarly, BAPCPA added a new § 547(h) that prohibits avoidance of a transfer “made as a part of an alternative repayment schedule between the debtor and any creditor of the debtor created by an approved nonprofit budget and credit counseling agency.”6 Question 3 now instructs the debtor to indicate with an asterisk “any payments that were made . . . as part of an alternative repayment schedule under a plan by an approved nonprofit budget and credit counseling agency.”

[7]

The word “created” was lost in translation to the new wording of Question 3, but the new question otherwise is a fair approximation of the changes by BAPCPA. Domestic support obligation is a concept new to the Bankruptcy Code that is defined in § 101(14A).7 “Alternative repayment schedule” is not a defined term though it appears several places in the Bankruptcy Code after BAPCPA.8

[8]

Approved nonprofit budget and credit counseling agency (NBCCA) is defined in § 111. Payments to a creditor as part of an alternative repayment schedule under a plan approved by an NBCCA aren’t likely for purposes of Question 3 on Official Form 7 unless the debtor encountered an NBCCA that created an alternative repayment schedule as part of the required prepetition “briefing” in § 109(h).9

[9]

Subpart “b” of Question 3 is amended to reflect that a debtor whose debts are not primarily consumer debts need not list each payment or transfer to a creditor made within the 90 days before the petition if the “aggregate value of all property that constitutes or is affected by such transfer is not less than $5,000.”10 This disclosure and the minimum $5,000 limitation applies only to debtors whose debts are not primarily consumer debts, and reflects the BAPCPA amendments to § 547(b)(9). This change in Question 3b of Official Form 7 will not affect most Chapter 13 debtors because most Chapter 13 debtors have primarily consumer debts.

[10]

A new subpart “b” has been added to Question 10 in Official Form 7 instructing the debtor to “[l]ist all property transferred by the debtor within ten years immediately preceding the commencement of this case to a self-settled trust or similar device of which the debtor is a beneficiary.”11 BAPCPA amended § 548(e) to empower a trustee to avoid any transfer of an interest of the debtor in property within 10 years before the petition if the transfer was to a self-settled trust or similar device, the debtor is the beneficiary and the debtor made the transfer with actual intent to hinder, delay or defraud any creditor.12

[11]

This new disclosure of transfers of property within 10 years of the petition could also be relevant to the new limitation on the value of property that can be claimed as a homestead exemption in § 522(o).13 Curiously, amended Question 10b only requires disclosure of transfers to a self-settled trust or similar device. The limitation on the value of property claimed as a homestead in new § 522(o) requires valuation of transfers by the debtor within 10 years of the petition made with intent to “hinder, delay or defraud a creditor” without regard to whether the transferee was a self-settled trust or similar device. The new disclosure required by Question 10b of the Statement of Financial Affairs mirrors the new limitation on the avoidance power in § 548(e) but is not robust enough to illuminate the new limitation on homestead exemptions in § 522(o).

[12]

Question 15 of Official Form 7 has been modified to extend from two years to three years the period before the petition with respect to which the debtor must reveal “all premises which the debtor occupied.”14 This change is intended to facilitate evaluation of the debtor’s exemption claims in light of changes to the domiciliary rules in § 522(b)(3)(A).15 Discussed in detail elsewhere,16 after BAPCPA, to determine exemptions, the law of the state in which the debtor is domiciled at the petition controls only if the debtor has been continuously domiciled in that state for the 730-day period before the petition.17 If the debtor has not been continuously domiciled in a single state for that 730-day period, then exemptions are controlled by the law of the state in which the debtor was domiciled for the greater portion of the 180 days immediately preceding the 730-day period.18 Three years of addresses in Question 15 of the Statement of Financial Affairs will permit some evaluation whether the debtor’s exemption claims are supportable. Gathering this information from debtors will be a challenge.

[13]

The Committee Note to amended Question 15 states that the disclosure period is extended from two years to three years to assist the trustee, the U.S. trustee and the court to ascertain whether a homestead exemption is properly claimed under § 522(p) and (q) as added to the Code by BAPCPA.19 Once again the amendment to the Form and the Committee Note are not exactly consistent with the cited section of the Code. Section 522(p) was amended by BAPCPA to limit the interest that can be claimed as a homestead exemption when state law permits the election of state exemptions and the debtor acquired property during the 1,215-day period before the petition that exceeds $125,000 in aggregate value.20 The 1,215-day reach back in new § 522(p) extends 120 days beyond the three-year disclosure required by amended Question 15.

[14]

The reference in the Committee Note to § 522(q) is even more obscure. As amended by BAPCPA, § 522(q) limits certain exemptions under state law when a convicted felon files an “abusive” bankruptcy case or when the debtor owes a debt arising from any violation of the securities laws, criminal acts and some intentional torts in the preceding five years.21 Nothing in § 522(q), as amended by BAPCPA, involves analysis of where the debtor lived during the three years before the petition.

[15]

Question 16 of Official Form 7 has been modified to extend from six years to eight years the period within which the debtor must disclose the identity of any spouse or former spouse who resided with the debtor in a community property state. BAPCPA amended § 727(a)(8) to extend from six years to eight years the bar on consecutive Chapter 7 discharges.22 Under § 524(a)(3), the discharge of an individual debtor has collateral effects on community claims. The name of a debtor’s spouse or ex-spouse during the eight years preceding the current bankruptcy case could be relevant to identify a prior bankruptcy case of a spouse or former spouse in a community property state during the extended eight-year prohibition on consecutive Chapter 7 discharges.

[16]

It is at least interesting that the extension from six years to eight years of the limitation on consecutive Chapter 7 discharges in § 727(a)(8) is not reflected by any amendment to § 524(b)(1)(A). In other words, BAPCPA extended the prohibition on consecutive discharges from six to eight years in § 727(a)(8), but with respect to the effects of the discharge injunction on debtors in community property states, the six-year look back in § 524(b)(1)(A) was not amended to reflect the eight years now stated in § 727(a)(8).23

[17]

Questions 19 through 25 on the Statement of Financial Affairs must be answered only by Chapter 13 debtors that are or have been “in business.” As mentioned above, the definition of “in business” on the first page of Official Form 7 has been changed to capture individual debtors who engaged in a trade, business or activity other than as an employee to “supplement income from the debtor’s primary employment.” This changed definition will require more Chapter 13 debtors to complete the “in business” portion of the Statement of Financial Affairs beginning with Question 19. Questions 19–25 are not materially amended in Official Form 7 but include inquiries with respect to books and records, inventories and the identities of others who may have been in business with the debtor.24

[18]

Finally, there is a reworded “declaration” at the end of Official Form 7 that must be executed by any bankruptcy petition preparer who assisted the debtor in preparation of the Statement of Financial Affairs.25

[19]

The Statement of Financial Affairs—Official Form 7—is among the list of documents in § 521(a)(1)(B) that the debtor must file “unless the court orders otherwise.”26 Interim Bankruptcy Rule 1007(b)(1)(D) and (c) require that the Statement of Financial Affairs be filed with the petition or within 15 days thereafter unless, for cause, the court allows additional time.


 

1  Official Form 7, at 1.

 

2  11 U.S.C. § 112, as amended by BAPCPA, does not prohibit disclosure in a public record of the address of a minor child, but the instructions to Official Form 7 tell debtors not to reveal names or addresses.

 

3  Official Form 7, at 1.

 

4  Committee Note, Official Form 7 (question 1 explanation).

 

5  See 11 U.S.C. § 1304(a), discussed in § 31.1 [ Special Information Needs ] § 33.1  Special Information Needs In Business Cases.

 

6  11 U.S.C. § 547(h).

 

7  See 11 U.S.C. § 101(14A), reproduced in App. FF and discussed in §§ 440.1 [ New and Changed Priority Claims ] § 73.3  Priority Claims Added or Changed by BAPCPA and 552.1 [ Domestic Support Obligations: § 523(a)(5) ] § 159.5  Domestic Support Obligations: § 523(a)(5).

 

8  See, e.g., 11 U.S.C. § 502(k)(1)(A) (reducing the allowance of certain claims when a creditor unreasonably refuses to negotiate a “reasonable alternative repayment schedule”).

 

9  See 11 U.S.C. § 109(h), discussed in § 18.1  In General§ 19.1  What is a Briefing? and § 36.25  Briefing Requirement and Certificate.

 

10  Official Form 7 (question 3b).

 

11  Official Form 7 (question 10b).

 

12  11 U.S.C. § 548(e), as amended by BAPCPA, reads:

(e)(1) In addition to any transfer that the trustee may otherwise avoid, the trustee may avoid any transfer of an interest of the debtor in property that was made on or within 10 years before the date of the filing of the petition if—
(A) such transfer was made to a self-settled trust or similar device;
(B) such transfer was by the debtor;
(C) the debtor is a beneficiary of such trust or similar device; and
(D) the debtor made such transfer with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made, indebted.

 

13  11 U.S.C. § 522(o) is discussed in § 407.1 [ New Exemptions and New Exemption Limitations ] § 48.3  Exemptions and Exemption Limitations Added by BAPCPA. 11 U.S.C. § 522(o) reads:

(o) For purposes of subsection (b)(3)(A), and notwithstanding subsection (a), the value of an interest in—
(1) real or personal property that the debtor or a dependent of the debtor uses as a residence;
(2) a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence;
(3) a burial plot for the debtor or a dependent of the debtor; or
(4) real or personal property that the debtor or a dependent of the debtor claims as a homestead;
shall be reduced to the extent that such value is attributable to any portion of any property that the debtor disposed of in the 10-year period ending on the date of the filing of the petition with the intent to hinder, delay, or defraud a creditor and that the debtor could not exempt, or that portion that the debtor could not exempt, under subsection (b), if on such date the debtor had held the property so disposed of.

 

14  Official Form 7 (question 15 explanation).

 

15  Committee Note, Official Form 7 (question 15 explanation).

 

16  See § 406.1 [ New Domicile Rules ] § 48.6  Domicile Rules after BAPCPA.

 

17  See 11 U.S.C. § 522(b)(3)(A), discussed in § 406.1 [ New Domicile Rules ] § 48.6  Domicile Rules after BAPCPA.

 

18  See 11 U.S.C. § 522(b)(3)(A), discussed in § 406.1 [ New Domicile Rules ] § 48.6  Domicile Rules after BAPCPA.

 

19  Committee Note, Official Form 7 (question 15 explanation).

 

20  11 U.S.C. § 522(p)(1), discussed in § 407.1 [ New Exemptions and New Exemption Limitations ] § 48.3  Exemptions and Exemption Limitations Added by BAPCPA.

 

21  See 11 U.S.C. § 522(q), discussed in § 407.1 [ New Exemptions and New Exemption Limitations ] § 48.3  Exemptions and Exemption Limitations Added by BAPCPA.

 

22  11 U.S.C. § 727(a)(8) states:

(a) The court shall grant the debtor a discharge, unless—
(8) the debtor has been granted a discharge under this section, under section 1141 of this title, or under section 14, 371, or 476 of the Bankruptcy Act, in a case commenced within 8 years before the date of the filing of the petition.

 

23  The effect of discharge in a community property state is discussed in § 357.1 [ In General, Including Discharge Hearing and Discharge Injunction ] § 162.1  In General, Including Discharge Hearing and Discharge Injunction.

 

24  See §§ 31.1 [ Special Information Needs ] § 33.1  Special Information Needs In Business Cases and 36.8 [ Statement of Financial Affairs for Debtor Engaged in Business ] § 36.31  Statement of Financial Affairs for Debtor Engaged in Business.

 

25  Bankruptcy petition preparers are discussed in § 4.2  Bankruptcy Petition Preparers.

 

26  11 U.S.C. § 521(a)(1)(B)(iii).