Liabilities

Tutorial on entering liability information in BkAssist®

Scope of Tutorial

• This tutorial covers how you enter liability information.

• Prerequisites: You should already have viewed these tutorials:– How to Use BkAssist

– Setting Up a New Case

• Who should view this tutorial: anyone who will prepare a bankruptcy case using BkAssist

• In this tutorial, we’ll continue preparing the case of Sarah & Sammy Sample that we first created in the Setting Up a New Case tutorial.

– If you want to follow along, download the file Sample_Sarah_Sammy_Basic.bkv to the BkAssist home directory and use the File/Receive menu command to load it into BkAssist (the Receive password is BkAssist). Then perform each of the steps illustrated during the tutorial.

– If you instead want to see the end result from following these steps, download and receive Sample_Sarah_Sammy_Complete.bkv instead.

Multiple Screens

• You can have as many of the Schedules and Forms information screens open at once as you wish. With multiple high-resolution monitors you can really spread out.

• Changes to one screen are immediately reflected in the other visible screens.

Multiple Liabilities

• You can also have multiple liability dialogs open at once. Here, we’re showing the dialog for the debtor’s mortgage and another dialog for a new liability we created by clicking on the Insert button.

The Liability Dialog• The Liability Dialog captures a lot of information, and all of it will be needed to completely prepare the petition.

• If all of the liability dialog won’t fit on your screen, you can use the scroll bars on the right and bottom edges to scroll the missing portion into view. BkAssist will automatically scroll the dialog as needed when you TAB or Shift+TAB from one field to the next.

Basic Information• Basic information about a

liability includes– Name and address of creditor

– Description of the claim

– Amount owed

– Account number

– Who owes the debt

– When debt originated

– Amount needed to cure default

– Monthly payment amount

– Interest rate

– Maturity date (when last payment due)

– Contact name & telephone (chapter 9 and 11 cases only)

– How claim will be treated

Creditor Name & Address• There is a complete tutorial about

entering creditor names: follow this link

• Basically, you just start typing in the Creditor Name blank.– A dialog will pop up in place of

the name blank where you can finish typing the name and then hit TAB to enter the address.

– BkAssist builds up a database of creditor names and addresses over time. As you type the name, a drop-down list will show a list of matching names from the database. If the creditor is already in the database, you can select from that list to automatically recall the address from the database.

Description of the Claim• Choose a description from the drop-

down list whenever possible—BkAssist knows that certain kinds of debts need to be reported in special ways.

– For example, a “student loan” debt should be listed on the statistical summary as a presumptively non-dischargeable debt.

– “Check” warns you if there are no “credit card” debts.

• If none of the choices fits, type a free-form description.

• Use the “plus size” button (the “+” button, or type Alt + “+”) to enter a longer description.

• If a debt is secured, for an unexpired lease, or has priority, you don’t need to pick one of the pre-defined choices—BkAssist will report the debt correctly no matter what you say in the Description blank, based on the character of the collateral.

Plus-Sizing a Description• You can “plus-size” a liability

description to record additional information.

• Enter Ctrl + Enter to add a line break to the description.

• The entire description appears on the liability schedule (D, E or F). Just the first line appears in other places, such as when describing the claim in a chapter 13 plan.

• In this example, Sammy owes child support to his ex-wife Sadie. We use a plus-sized description to explain why he fell behind.

Amount Owed• Enter the total amount owed by the

debtor(s) as of the petition date.

• If you don’t know how much is owed, enter zero and check the “unliquidated” box elsewhere on the dialog.

• If this is a non-recourse debt, likewise enter zero.– This would be the appropriate way

to deal with a mortgage debt that encumbers estate property but which was previously discharged in an earlier bankruptcy or for which neither debtor is liable on the promissory note.

– It will be helpful to anyone reading the schedules for you to plus-size the description to explain why you’ve entered zero.

Account Number• Enter the full account number or

just the last 4 digits, as you please.– Some attorneys like to enter the

full account number so they can easily refer to it when discussing the claim with the creditor.

– An option on the Legal Choices sheet will cause BkAssist to redact the number that actually appears on schedules.

Who Owes the Debt• In a joint case, select Debtor,

Spouse, Joint, or Community from the drop-down list to indicate who owes this debt.

• BkAssist will fill in the appropriate indication (currently H, W, J, or C) on the debt schedule.– Whether the “debtor” is H or W

depends on the gender you assign on the Debtor Page.

– We will update BkAssist when new forms are issued to accommodate same-sex married couples filing joint petitions.

Origination Date• Indicate when this obligation arose.

• The debt schedules request an origination date, and some trustees and clerks will complain if you don’t supply one.

• For open-end credit obligations (such as credit cards), attorneys typically pick one of the following:

– Date when account was opened

– Date when account first went into default (usually hard to determine, especially if there is a universal default clause in the agreement)

– Date of last account activity

• BkAssist allows you to use approximate dates (month and year, or just the year) anywhere a date appears, and that ability might be very useful for a credit card debt:

Cure Amount• If the obligation is in default on

the petition date, indicate the amount required to cure the default.

• BkAssist uses this amount in two places:– When performing the means test

(but only if the debtor will be keeping the collateral and the collateral is necessary for the support of the debtor or a dependent)

– When preparing a chapter 13 plan (but only if the debtor will be keeping the collateral)

Monthly Payment• Enter the contractually required monthly

payment for a secured debt or unexpired lease. Leave this field blank for an unsecured debt.

• BkAssist uses this amount in several places:– In calculating the monthly payment amount

shown on the Monthly Expenses Screen (in fact, you can’t explicitly specify an amount on the Expenses Screen for mortgages and car loans)

– In generating Schedule J

– In calculating the 60-month average of contractually due payments on the means test

– In determining the amount of conduit payments in a chapter 13 plan

• If you are cramming down the interest rate on a secured debt, do not try to calculate the amortizing payment. BkAssist will do that automatically as part of calculating the plan. This blank should contain the contractual payment amount.

Don’t use the Monthly Payment blank on the liability dialog to report the regular monthly payments for homeowner’s association or condominium dues, even when you’ve classified this debt as “HOA”. Use the Income & Expenses button on the asset dialog instead.

Interest Rate• Enter the interest rate that applies

to this claim as a percentage. E.g., “7.5” means 7.5%, or 0.0075.

• For a Chapter 13 case, enter the rate that will govern payments under the plan, which may differ from the contractual rate.– E.g., if you are cramming down

an 18% car loan to the Till rate of (say) 4.0%, enter “4”.

– In some judicial districts, you may be required to pay unsecured creditors the net present value of their claims. Enter the discount rate to be used in performing the NPV calculation.

• Don’t overlook § 511(a), which requires payment of interest on tax claims at the rate determined by applicable non-bankruptcy law.

Maturity Date

• Enter the date when this obligation will be paid off, assuming curing of any pre-petition default and continuation of contractual payments.

• This is a critical field! BkAssist can’t calculate the 60-month average of payments for the means test without knowing this date.

Insider Status• Indicate whether the creditor is an

“insider” within the meaning of § 101(31).– Generally speaking, relatives

within the third degree and business affiliates are “insiders”, but the statutory definition is not exclusive.

– In this example, we have elected to treat Sammy’s ex-wife as an insider.

• BkAssist will automatically– Apply the longer preference

lookback period to pre-petition payments to insiders

– Exclude insiders from the top-20 unsecured creditors listed for chapter 9 and 11 cases.

Contact Information

• In Chapter 9 and Chapter 11 cases, provide contact information for any creditor who might be listed as among the top-20 unsecured creditors.

Treatment• Specify a treatment choice from the

drop-down list.• This is a critical field! Many, many

decisions BkAssist makes depend on the treatments you specify for claims.

• Treatment choices differ from district to district and depend on what chapter you’re filing under.

• In general, choices for secured debts include:

– Chapter 13 cases:• Exclude [not treated in plan]• Cure & maintain [§ 1322(b)(5)]• Surrender• Cram down• Cram down interest

– Chapter 7 cases:• Reaffirm• Redeem• Surrender• Retain & pay

•In general, choices for unsecured debts include:–Chapter 13 cases:

•Exclude [not treated in plan]•Pro-rata

•Chapter 7 cases:•Pro-rata

•In general, choices for an unexpired lease include:

•Affirm

•Reject

Attributes of the ClaimAre real-estate taxes included in the monthly payment?(Usually relevant only for first-mortgage debts)

Are property insurance premiums included in the monthly payment? (Usually relevant only for first-mortgage debts)

Is the collateral necessary for the support of the debtor and the debtor’s dependents, such that § 707(b)(2)(A)(iii)(II) allows a means-test deduction for the 60-month average of cure payments?

Is the amount of the debt unknown?

Is the debtor’s liability contingent in some way?

Is the debtor’s obligation subject to a bona-fide dispute?

(Chapter 9 and 11 cases) Is the obligation subject to a right of set-off that should be reported on the list of top-20 unsecured creditors?

Pre-Petition Payments• Certain payments made to creditors prior to filing for bankruptcy may be

avoidable preferences. Rather than try to evaluate whether they truly constitute preferences, it’s better to simply list all pre-petition payments going back 90 days (one year in the case of a creditor who’s an insider) and let the trustee decide.

• This is true even for a secured creditor: even though normal monthly payments do not allow a secured creditor to receive more than its fair share in a liquidation, question 3 on the Statement of Financial Affairs asks for all payments aggregating to a certain amount within the relevant preference period; it does not ask you to judge whether the payments might be treated as preferential under § 547.

Secured Debts and Leases• If the debt is secured by estate property or is for an unexpired lease, check the appropriate box and

select the collateral (or leased property asset) from the drop-down list.• If you haven’t yet defined the collateral asset, click on the New button. That will pop-up an asset

dialog where you can provide the description.• BkAssist initially ranks debts based on the order in which you enter them.

– E.g., enter the first mortgage first, then the second mortgage, etc.– You can reorder the debts on the asset dialog if you need to.

• BkAssist currently has no way to indicate that more than one asset secures a single debt.– So, for example, there is currently no way to directly indicate that a tax lien encumbers all of a debtor’s

property other than by noting that fact in the description of the debt.– In some situations, you can simply define a single asset whose description includes more than one item of

property. This is the appropriate way to deal with a loan that is cross-collateralized by a few discrete items that are not collateral for any other lender’s debts.

• When you enter an unexpired lease on the liability screen, BkAssist will automatically:– Indicate the debtor’s intention to assume or reject the lease on the Chapter 7 Statement of Intention or the

Chapter 13 plan.– List the lease on Schedule G.

Priority Claims• If an unsecured debt is entitled to priority, so indicate on the Liability Dialog.

• Also be sure to indicate how much of the debt is entitled to priority.

• BkAssist will automatically:– Calculate an allowance for priority debt payments on the means test.

– Include payment of the debt in the Chapter 13 plan.

• This example is for Sammy’s child-support obligation to his ex-wife.

Co-Debtors• List co-debtors in the co-debtor section of the liability dialog.

• BkAssist will automatically:– Check the “co-debtor” box on the debt schedule (D, E, or F)

– Include the co-debtor in Schedule H

– Include the co-debtor on the creditor matrix

• In this example, Sammy is jointly liable with his ex-wife on a Bank of Avarice credit card. We’ll assume that Sadie assumed responsibility during the divorce (otherwise, Sammy’s obligation would be non-dischargeable in Chapter 7).

Additional Notice• Use the Additional Notice section to list persons who should be notified about the

bankruptcy in addition to the primary obligee listed as the creditor.– For example, you might list collection attorneys or other third-party debt collectors here.

– Listing additional notice parties here is really just a matter of bookkeeping: there is also an additional-notice screen that you can reach directly from the Schedules & Forms Page. The only real difference is that a party listed only as an additional-notice party for a particular debt will be deleted from the matrix if you delete the debt.

Downloading Credit Reports (1)• Beginning with Version 1.4, BkAssist partners with several leading providers of credit data to let you download

credit reports and automatically populate the list of liabilities.

• Select your preferred provider from the Credit Reports tab of the General Settings sheet (select General Settings from the Settings menu on the main window) and provide the login credentials the provider gave you.

• Click on the Download button on the liabilities screen.

• BkAssist will then download credit report data for both debtors based on the address and social security numbers you’ve provided on the Debtor and Spouse Pages. It will analyze the tradelines and add liabilities to the list.

– Credit report data often has cryptic names and incorrect addresses, and will certainly not include all the information BkAssist needs about every debt. BkAssist will pop up a dialog to let you reconcile the credit report names with the names in your database, and it will also pop up a dialog listing the problems it identifies with the downloaded tradelines.

Downloading Credit Reports (2)• This is an example of the creditor name reconciliation dialog based on the raw data from a MicroBilt

credit report. We’re going make several changes to this dialog to make the data more accurate:– Overtype the 3d column of the “Dsnb Macys” tradeline with “Department Stores National Bank” and change

the action in the 4th column to “Additional Notice” so that DSNB gets an extra notice at the P.O. Box shown in the credit report.

– Overtype the 3d column of the “First Premier” tradeline, enter the 3820 N. Louise Ave. address, add First Premier to the database, and change the action to “Existing” so that we use the address without “Tape Only”.

– Overtype the 3d column of the “Fst Premier” tradeline with “First Premier” and change the action to “Existing” so we don’t use the cryptic name that the tradeline had.

– Do something very similar to the two cryptic tradelines for GM Financial.– Do something similar with the “Security Credit” tradeline so the address reads “W. Oxford Loop”

Downloading Credit Reports (3)• This is how the reconciliation dialog appears when we’re done making those changes.

• As a result of what we’ve done, BkAssist will now:– Remember “First Premier”, “GM Financial”, and “Security Credit Service” in the creditor database.

– Recognize “Fst Premier” as meaning “First Premier” and “gmfnancial” as an alias for “GM Financial”, which will simplify future credit report downloads.

– Send multiple notices about this case to Department Stores National Bank and Capital One.

Importing Liabilities (1)• You can also import a list of liabilities from an external file.

– The import facility is most useful when you have a large number of unsecured debts to import, such as when you’re preparing a case for a business entity with many suppliers.

– Your staff may find it easier to create an external file listing a client’s debts than to enter debts individually inside BkAssist

• Read the help file for the Liabilities dialog for detailed instructions about how to import debts.• In this example, we are using a spreadsheet (SampleDebts.xls) to illustrate the process. It contains

information about a debt collector and about a student loan that Sammy guaranteed for one of his kids from a prior marriage. You can download this spreadsheet and use it in your own practice by deleting the sample data rows. This slide shows an excerpt from the spreadsheet.

Importing Liabilities (2)• This slide illustrates the flow of the external file import wizard. Because we labeled the data columns the way BkAssist

expects them to be labeled, we were able to accept the default correspondence on the second screen.

Importing Liabilities (3)

• At the end of the import process, BkAssist may pop up a list of imported debts that require attention for some reason.

– In this example, BkAssist has noticed that the zip code specified for one of the creditors doesn’t match the city and state specified in the import file.

• Double-click on an item to pop up the associated liability dialog.– If the problem is with the address, click on the “…” button next to the creditor name to inspect and/or alter the

name or address.