Crushing Debt Podcast Episode 126: Schedule I & J of the Bankruptcy Petition
Schedule I and J of the bankruptcy petition is the budgetary portion of the bankruptcy petition and there is an art to completing someone’s budget when they’ve decided to file for bankruptcy. In this Blog post (taken from Episode 126 of The Crushing Debt Podcast), we’ll review the budget schedules of the Bankruptcy Petition in detail. Basically, schedule I describes income and schedule J shows expenses. A couple of things that we need to look at when we’re completing schedules I and J – by the way, if anyone wants to see a copy of a blank schedule I and J please email me Shawn@YesnerLaw.com.
The first thing listed on Schedule I is marital status – are you single or married and does your spouse live with you? There is also an option to list that you’re married but separated, so you can disclose your income to the trustee and exclude your spouse’s income, because you may not know what it is or because your spouse doesn’t support you because of the separation. The next thing that the trustee wants to know is your occupation and, if you are employed, your employer’s name and address and how long have you been employed. You need to provide this information whether you have one job or more.
Wages can get a little complicated based upon whether the debtor is paid bi-weekly (every two weeks, or 26 pay periods per year) or weekly (52 pay periods per year) of bi-monthly (twice a month). Luckily my bankruptcy program calculates everything for me but, for example, when we describe income and you’re paid every other week, we need to take that per payroll number and multiply it by 26 payrolls and then divide that by 12 to get the monthly amount. Many times clients will give me the amount of take-home pay from their paycheck and multiply that by two. However, if they’re paid bi-weekly (every other week) then the schedule I will reflect a little more in monthly payroll than what they take home ten months of the year. What these debtors fail to remember is that two months of the year they get an extra paycheck. This analysis is for people that earn a W-2 salary. If you’re self-employed there’s another section of schedule I where we show monthly income and expenses. There are also sections to report Social Security income, disability income, pension income, dividend (investment) income, receipt of alimony or child support, unemployment compensation, rental income, or any other type of income. We do need to disclose anything and everything, even money or support from family, sales of personal property on the internet, etc., even if the income (like Social Security or Alimony & Child Support) is exempt. There is a place where we can disclose that you expect an increase or a decrease in income, like a raise, or if you anticipate that you might be laid off or one of your benefits will be ending soon.
The income portion of your bankruptcy budget is straight-forward. The art and science to completing the budget comes in the expenses, schedule J.
The first thing that the Bankruptcy Court wants to know is what dependents you have – kids or maybe a dependent parent or a dependent sibling or somebody that you are the appointed Guardian. The next item is the rent or mortgage payment that you pay, plus whether that payment includes taxes and insurance. Plus, what home maintenance expenses and homeowner association or condominium dues do you pay, and what of those are those part of your rent or mortgage payments. For example, if a debtor has a $1,000 mortgage payment but they also have a $250 escrow payment, then their total mortgage payment is $1250. The correct way to disclose this would be each individual piece of the total payment – $1000 as the mortgage payment and then $250 in taxes and insurance. One interesting thing about schedule J in a chapter 13 case, we don’t actually list a mortgage expense in the budget because that money that would typically go to the mortgage expense is now going to go to the bankruptcy trustee to pay the mortgage expense. Therefore, listing the payment as a mortgage expense pays it twice (once to the trustee and again to the bank) so that’s something that we have to consider when we’re completing schedule J. Then we list any additional mortgage payments like a second mortgage, a home equity line of credit, or something similar.
Household expenses are next, like your utilities: electricity, gas, water, sewer, garbage collection, etc. Then we list your telephone bill, internet bill, satellite or cable bill, and any other utilities. One issue to consider, especially in the summertime, your electric bill is going to be double or triple what it is in the wintertime, especially if you’re like me and you like to open the windows when it gets cool outside. You’re not going to use your electricity those times that you have the windows open so your electricity bills could range from less than a hundred dollars in the winter to more than two or three hundred in the summer. What I would typically do is try to average out all of those utility bills over the course of the year and put in the average utility bill; we don’t want to go too low because we don’t want to show the trustee that you have a ton of extra income at the same time I don’t think it’s fair to say every month we’re going pay three hundred dollars in electricity when we know that in the wintertime our electric bills are going to be low. Same thing with gas usage or other utility bills that vary based on the time of year.
Sometimes I think schedule J may be wrong in that it combines your cell phone bill and internet bill. I happen to use two different providers; one for internet and one for cell phone. In that situation I list the internet bill where it should be listed and then there is a catch-all “other utilities” where I then put the cell phone bill. As long as we’re disclosing everything to the court and trustee, I think we’re doing okay.
For food expense I think that the trustees generalize and say each person in the house is going to eat between $200 and $250 worth of food per person per month; so a household of four would be around $800 – $1,000 per month. If I schedule a lot more than $1,000 a month or a lot less than $800 a month, this budgetary item may draw a raised eyebrow from the bankruptcy trustee. I once had a client, a single man, who listed about $1,500 a month in food. He wasn’t overweight and a good-looking guy. I said to him “you’re not packing on the pounds, where are you putting $1,500 a month in in food?” He looked at me and said, “well I date a lot.” I was happy he had an active social life, but I didn’t think the trustee was going to allow us to get away with $1,500 a month in food
The next line item on the budget is child care and children’s education costs and again this is one that can get a little bit complex because if you’ve got a fifteen-year-old in public school your education costs are going be a lot less than if you have a two-year-old in daycare. Or if you’ve got a fifteen-year-old in the most expensive, prestigious private school in the area the trustee may challenge that fee while you’re trying to file bankruptcy.
The next expense item on the budget is clothing, and laundry and dry cleaning. Be careful here, because while I just spent $80 on dry cleaning, which I do once every month or every other month, you want to be careful if, for example, you have a washer & dryer in your house. At the same time, if you rent and you have to go to the laundromat, or you have to go to a coin-operated facility then obviously we’re going to expect there to be some expense listed. Also, if you work in a job where you have a uniform that you have to wear that needs to be dry-cleaned, again maybe that’s a place where we can get away with a little bit more for this budget item. Similarly, personal care products and services; if you are someone who is bald (like me) and you listed $500 a month in hair care products, the trustee is going to challenge that expense. Conversely, if you’re a woman you need feminine products so maybe there’s an expense there if you’re a woman.
Medical and dental expenses include prescriptions, co-pays and the like. Transportation expenses include gas and maintenance, but not your car payment. So, in times when gas prices are higher this expense can be more, and in times when gas prices drop this expense should be less. Plus, we can annualize your maintenance expenses and then divide that by 12 as your transportation expenses. The other thing that the trustee might look at is how old is your car or if you have a new car. We would expect your transportation expenses to basically be gas if you have a new car, but if you have a 10-year-old car we’re going to expect there to be a little bit more maintenance.
The next expense is entertainment, clubs, recreation, newspapers, magazines and books. The trustee and the Bankruptcy Court do give you some leeway to have a little bit of fun, so long as we’re not talking about trips out of town. You can go to the movies once a month, or out to dinner occasionally. Do you subscribe to any magazines, or online publications? Do you make any charitable contributions or religious donations? You can still tithe however if you want to claim your tithing on the bankruptcy schedules, it would be helpful to get receipts so that we can show the court how much you tithe.
Next, you can list all of the insurance that is not deducted from wages, like life insurance, health insurance, car insurance, or any other types of insurance policies. The following expense category is taxes that are not deducted from wages; do you owe the IRS or do you owe some other type of tax?
Schedule J allows you to list any car payments or lease payments. This is another place where if you’re claiming bankruptcy but paying thousands of dollars a month for cars, the trustee may challenge those expenses. Interestingly, as a bankruptcy attorney I’m not allowed to tell a client to incur debt in order to file a bankruptcy so if I see that their car payments are too high I might be able to suggest that they get a different car and a cheaper car payment so that their car payments are not challenged, but I’m not allowed to tell my clients to incur debt in anticipation of filing a bankruptcy. My advice typically, if you need a new car then get a new car, just make sure you’re not trading in that Honda Accord for a Mercedes!
Do you pay alimony or child support, or something other type of marital settlement? Remember in the income part of the budget there’s a place to say that you receive Alimony or Child Support; in the expense portion of the budget there’s a place to list that you pay these expenses. Similarly, do you pay to support others who do not live with you, like living expenses for your college kids that are away at school. I think a payment in this expense category is certainly going to be challenged by the bankruptcy trustee unless your child has some type of emotional or physical support that they require additional money. If you’re just helping to subsidize your kid because they’re in college and they won’t don’t want to work, I think the trustee might challenge that expense.
The next group of expense categories deal with other property that you own. For example, do you have an investment house that requires the payment of the mortgage, taxes, insurance, repairs, homeowner’s associations, etc.? If you have investment property, the trustee is going to challenge you on expenses related to investment property.
Finally, there is a catch all other expenses and just like on the income side there is a place to describe to the trustee that you foresee that your expenses are going to go up or down during the course of the bankruptcy proceeding, which will cause your income your net income ultimately to go up or down during the bankruptcy proceeding.
One question I get from clients is whether they need to show a positive income or a negative income. I don’t like that question because the answer assumes that you’re making up numbers to make the bankruptcy “look better.” Typically, I’ll ask a client to fill out the budget honestly and then we’ll go through it. If I see that the client has an expense that’s too high or low, we’ll talk about it and if we need to adjust it.
Schedules I and J of the bankruptcy petition help determine whether we have to file chapter 7 (liquidation) or chapter 13 (reorganization) cases because if the client makes a small amount of income, we should qualify for chapter 7, or if the client has excess income, we may want to file a chapter 13 case. Schedules I and J are a really good tool if you just want to budget, even if bankruptcy is a bad option for you, or you have no intention of filing bankruptcy. You can use the schedules together if you just want to budget for your household. The only thing that’s missing from schedule J is credit card payments because if you’re filing bankruptcy you won’t be directly paying those unsecured creditors.
If you have questions about budgeting, about helping the creditors to go away, or if you feel like you need to file bankruptcy, please contact us to schedule a free initial consultation to discuss your options at 813-774-5737 or email me directly at firstname.lastname@example.org. You can also order Crushing Debt: 9 Strategies to Eliminate Financial Bullies on Amazon.com. Please also subscribe to the Crushing Debt Podcast, on Apple Podcasts, Spotify, and other podcast players, including Amazon Echo (“Alexa”) for more free information about these topics.
Shawn M. Yesner, Esq., is the host of the Crushing Debt Podcast and founder of Yesner Law, P.L., a Tampa-based boutique real estate and consumer law firm that helps clients eliminate the financial bullies in their lives. We assist clients with asset protection, the sale and purchase of real property, Chapter 7 liquidation, Chapter 13 reorganization, bankruptcy, foreclosure defense, debt settlement, landlord/tenant issues, short sales, and loan modifications in Tampa, Westchase, Odessa, Oldsmar, Palm Harbor, Clearwater, Pinellas Park, Largo, St. Petersburg, and throughout the greater Tampa Bay Area.