What does a SOFA have to do with bankruptcy?

Part of the required paperwork is called the
Statement of Financial Affairs or SOFA.

The SOFA is a complex series of questions that must be answered. This is where everything that has not already been provided in the petition and schedules is listed.

What the SOFA includes.

The first page of the SOFA gives specific instructions. The first few questions deal with income. Unlike the means test which looks back six months, or Schedule I which is for current monthly income, the SOFA asks for your year to date income and your income for the past two years.  It asks for wages and money from business as well as all other income.

All other income includes:

  • Annuity payments
  • Interest income
  • Investment income
  • Rents
  • Unemployment payments
  • Social security
  • Social security disability
  • Lottery winnings
  • Worker’s compensation
  • Spousal support
  • Child support
  • Family support

Then there are questions about your debt payments. If the bankruptcy consists of mainly consumer debts, then any payments made in the 90 days prior to filing that equal or exceed $600 must be disclosed here. That is a total of $600 or more to any one creditor and not an individual payment of $600. These are considered preference payments and the Trustee can seek return of the payments to divide among the other creditors. All payments to insiders, like your family members, made within the past year must be listed. If you are married and filing a sole petition you must also account for any payments made by your spouse. If significant payments have been made to family members and none to other creditors, then it is wise to wait until one year has passed to file a bankruptcy. Otherwise there is a very real risk that your relative will be sued by the Trustee for return of the payments.

Other things listed in the Statement of Affairs are:

  • Repossessions, foreclosures and returns;
  • Assignments, receiverships, transfers and set-offs;
  • If anyone has sued you, there is a place to put the case information including case caption, case number and court;
  • Garnishments and repossessions;
  • Individual gifts and charitable contributions made in the past year;
  • All losses from fire, theft and gambling in the last year;
  • Payments to your attorney and for the credit counseling course;
  • Contents of any safe deposit box;
  • Anything you are using that belongs to another person like that DVR or cable modem that is rented or on loan;
  • If you live in California, or any other community property state, your spouse even if they are not filing with you;
  • If you have been divorced less than nine years, the name of your former spouse.

If you have a business there are a number of questions that must be answered. The more complex the business the more questions that must be answered.

Full disclosure is required.

The SOFA is a lengthy and complicated series of questions that must be answered completely and correctly or your bankruptcy case could have problems. If the answers are not complete or don’t match with your tax returns and other materials that the trustee will review you will be challenged and may lose your discharge. The bargain you make when filing for a bankruptcy is full disclosure of your entire financial picture in exchange for discharge of all dischargeable debts. Make use of a trusted and knowledgeable legal adviser to make certain that your case is well prepared.

Other S’s:

Image by Leo Reynolds.

It is a myth that taxes are never discharged in bankruptcy.

Unsecured income taxes first due over three years before a bankruptcy is filed can be discharged in full in any chapter of bankruptcy if a timely and non-fraudulent tax return was filed.

Priority taxes are taxes first due within three years of the bankruptcy filing and taxes assessed within 240 days of the bankruptcy, or which are unassessed but assessable when the case is filed. These taxes are priority claims which are not subject to discharge. Priority taxes will survive a Chapter 7 discharge to the extent that the trustee does not have money in the estate to pay them.

In Chapter 13, such taxes must be paid in full through the plan; penalties associated with those taxes, however, can be treated as a non-priority claim and paid a fraction along with other unsecured claims. In a Chapter 13, if the plan is completed, the tax does not continue to incur interest during the case and no post filing interest is due.

Taxes for which no income tax return has been filed are not dischargeable in bankruptcy

If a return was filed late, for a year outside of the priority tax period, the return must have been on file for two years for the tax to be discharged in bankruptcy.

Some tax debts are not dischargeable

Tax debts that arise from unfiled tax returns are not dischargeable. The IRS routinely assesses tax on unfiled returns. These tax liabilities cannot be discharged unless the taxpayer files a tax return for the year in question.

Five Rules to Discharge Tax Debts

If the income tax debt meets all five of these rules, then the tax debt is dischargeable in Chapter 7 and Chapter 13 bankruptcy petitions.

1. The due date for filing a tax return is at least three years ago. The tax debt must be related to a tax return that was due at least three years before the taxpayer files for bankruptcy. The due date includes any extensions. (It should be noted that all dates are subject to tolling events. This means that different circumstances may impact the time. For example, if you live outside the United States for six months or more you need to add this period to the time. It is best to speak with a knowledgeable local lawyer regarding your specific circumstances.)

2. The tax return was filed at least two years ago. The tax debt must be related to a tax return that was filed at least two years before the taxpayer files for bankruptcy. The time is measured from the date the taxpayer actually filed the return.

3. The tax assessment is at least 240 days old. The IRS must assess the tax at least 240 days before the taxpayer files for bankruptcy. The IRS assessment may arise from a self-reported balance due, an IRS final determination in an audit, or an IRS proposed assessment which has become final.

4. The tax return was not fraudulent. The tax return cannot be fraudulent or frivolous.

5. The taxpayer is not guilty of tax evasion. The taxpayer cannot be guilty of any intentional act of evading the tax laws.

Other Tax Issues in Bankruptcy

Before a Chapter 13 bankruptcy can be granted, the bankruptcy petitioner is required to prove that the four previous tax returns have been filed with the IRS. The four previous tax returns must be filed no later than the date of the first creditors’ meeting in a bankruptcy case.

Additionally, bankruptcy petitioners are required to provide a copy of their most recent tax return to the bankruptcy court. Creditors can also request a copy of the tax return, and petitioners must provide a copy to them.

If you are expecting a tax refund and want to keep it must be listed as an asset and exempted. Otherwise the Trustee will take the refund for the benefit of your creditors.  List it or lose it.

Other T articles:

Image by 401kcalculator.org

What is unsecured debt and why does it matter?

There are two main types of debt – secured and unsecured. Secured debt means that there is a lien on some property that guarantees the debt. For example, a loan on a house has a mortgage that is recorded against the property. A mortgage is a secured debt with a lien against the house.  It must be recorded with the local county recorded.

Likewise an automobile loan is secured by the automobile and the lien is recorded with the Department of Motor Vehicles.  If you borrowed money but the lender isn’t on the title then the loan isn’t perfected and there is no lien.

Most credit card debt is unsecured. Once in a while there is a security interest as in a Sears’s account or other store where you make a major purchase. They may have you sign a document that states they have a security interest in the property until it is paid for. The majority of credit card debt is not secured by the purchases that are made.

Medical debts are also usually unsecured. Once in a while a practitioner may ask for a security document but it is very unlikely. The normal procedure is to submit the bill to your insurance company and then bill you for the unpaid portion. If you have any major medical issues it can quickly add up.

Sometimes unsecured debt can become secured debt

If there is a judgment taken for a past due credit card debt it can become a lien against property which will change the nature of the debt.  Never ignore court paperwork as the time lines run quickly and a creditor can obtain a default judgment.  That means you never even went into court but they got a judgment and can enforce it in many ways.  One way a creditor tries to collect is to record a lien in the county where you live.

It matters because secured and unsecured debts are treated differently under the law and must be designated properly for each case that is filed.

Bankruptcy is often confusing, filled with deadlines and documentation. It takes a toll emotionally as well as financially. If you think bankruptcy is on the horizon, check out the Bankruptcy Alphabet, which covers different areas of Chapter 7 and Chapter 13.

Learn more about filing for bankruptcy in California, from making a list of “Assets” and “Northern” California Bankruptcy Court to “Unsecured Debt”. Contact me if you have questions or if you’re ready to move forward with the rest of your life.


A – E

A is for Assets

B is for Beware of Credit Card Offers

C is for Chapter 7

D is for Disclose Everything

E is for Equity

F – J

F is for Fresh Start

G is for Gumshoe (Start Investigating)

H is for Homeowners Association

I is for Income

J is for Joint Filing

K – O

K is for 401(k)

L is for Lift the Bankruptcy Stay

M is for Means Test

N is for Northern California Bankruptcy Court

O is for Organize

P – T

P is for Preference

Q is for Qualified Written Request

R is for Reorganization

S is SOFA (Statement of Financial Affairs)

T is Tax Dischargability

U – Z

U is for Unsecured Debt