Disclosing ownership of an asset doesn’t mean you will lose that property. Statistically, only four percent of all Chapter 7 bankruptcy cases have an asset that is turned over to the trustee. Federal and/or state exemption laws protect most property during bankruptcy, however property exemptions are only recognized when the asset is listed and the legal exemption is properly claimed. An asset that is concealed during your bankruptcy case will not receive the full protection of the exemption laws. 

Likewise, disclosing income does not mean that you will be forced into a Chapter 13 repayment case. Most debtors pass the means test without much effort. In the remaining cases, most only require small adjustments. Disclose all of your income early during the bankruptcy process, and your attorney can discuss your legal options for discharging unsecured obligations without filing a Chapter 13 repayment case. 

Intentionally failing to disclose a debt means that the debt is not discharged. Unfortunately, it also means that you have committed perjury since you attested to having listed all of your debts. Perjury is a federal crime, and you may be denied a discharge. Occasionally a debtor wants to omit a creditor from the bankruptcy case. Your attorney can help you with this decision. For instance, a credit card with a zero balance is not a debt and there is no disclosure requirement. In theory, since the credit card company is not listed as a creditor, it does not receive notice of the bankruptcy, and the credit relationship is not disturbed. Realistically, the credit card company will discover the bankruptcy independently and may restrict the account. 

When it comes to bankruptcy it is important to be completely honest with your attorney. Your attorney can advise you on making the best disclosure decisions while staying within the legal requirements of the bankruptcy laws. Don’t hide a financial fact! Discuss it with your attorney and protect your legal rights.

Facts: Debtor was living between her home and her mother’s home who she cares for.  She had a mortgage on her home and her son lived in the house and paid the mortgage. She had approximately $14,000.00 in equity in the home.  Her living arrangement with her mother was not disclosed during the consultation, review, or filing appointments.

At court, the debtor informed the Trustee of these things. This was the first time the attorney heard of this arrangement. She had also claimed the equity as an exemption under U.S.C. 11 section 522(d)(1). The Trustee determined this was an asset case and objected to the exemption on the basis that she could not exempt this equity because it was not her residential real estate since she resided at her mother’s home. All of her mail went to that address, her driver license had that address, and this was also the address she used for voter registration.  The Trustee later filed a Motion to Sell the Real Estate which the Court granted.

This was not the client’s intention.  She wanted to keep her home and eventually move back in permanently with her son.  In an effort to save her home, she moved the Court to convert to Chapter 13 which was granted without objection by the Trustee.  She must now fund a plan to pay money to her unsecured creditors.

The moral of this story is to fully disclose your assets and any arrangements involving those assets to the attorney.  It is a matter of losing assets you think may be protected by exemptions which may not be the case.  Those assets can be liquidated through sale in a Chapter 7 case by the Trustee to pay your unsecured creditors for the debts you owe.  The attorney can best advise you on how to handle your assets.  Remember that what you don’t disclose can hurt you by either losing the asset, forcing you into a Chapter 13, or most harshly losing the asset and not receiving a bankruptcy discharge at all.

In dividing assets, it is just as important to know what one is giving up as it is to know what one is getting.  It is encouraged for a couple to agree to the division of the marital property; however full disclosure of assets and debts is the only way to fully understand the complete financial picture of the marriage.

 Many may believe that such disclosure is a waste of time since they have already agreed on who gets what.  The importance of disclosure comes down the road when one discovers that the other had been putting a good portion of money into their retirement, or when one discovers that their name is on debt that they didn’t know about.  Divorcing couples still want to believe in each other and not assume the worst, but these types of scenarios occur every day. 

The bottom line is to be informed; know what you are giving up before signing an agreement.  It may avoid pain from the past from coming into your future.

In this case, which was not filed by our office, the debtors listed in their schedules “miscellaneous jewelry” valued at $10,000.00.  The Trustee discovered that this was a misrepresentation by reviewing the debtors’ homeowner’s insurance policy which listed jewelry at $105,925.00 and home furnishings valued at $14,819.00.  The Trustee required the debtors to turn over a list of all the items covered under the homeowner’s insurance policy.  In addition, the Trustee conducted a deposition of the debtors who testified that it was their best belief that the jewelry was not worth more than $10,000.00. 

 The Trustee conducted an auction of the items and received $50,400.00 for the jewelry alone.  The Trustee then filed a nondischargeability action against the debtors pursuant to 11 U.S.C. section 727(a)(2) and (a)(4) requesting the court to deny the debtors’ discharge on the basis that they attempted to hide assets from the Trustee.  The court ruled in favor of the Trustee finding that because the debtors concealed the true value of the jewelry and other personal property, they should be denied a discharge of all of their debts.

Disclosure of all property owned by a debtor is critical when filing a bankruptcy.  As can be seen by the above case, failure to be accurate on the bankruptcy schedules could result in losing those items and, more importantly, being denied a discharge of your debts in bankruptcy.  An actual intent to deceive or hide assets could also be found to be criminal subject to jail time by the debtors if convicted.  So remember, not only should all property be listed, it must also be listed with accurate values.  And by signing the bankruptcy schedules, the debtors are swearing under penalty of perjury that the information is true and correct to the best of their knowledge.