Hiding cash in Chapters 7 and 13, as well as other assets, will prompt a bankruptcy trustee investigation because filing for bankruptcy is a transparent process. In exchange for having your debts "discharged" or wiped out, you must list your income, everything you own, and all your debts on your bankruptcy paperwork.
If you don't fully disclose your financial situation, you won't be entitled to a debt discharge and might be subject to criminal penalties. Find out what the bankruptcy trustee looks for during your case and how to avoid bankruptcy fraud.
People try to hide assets in bankruptcy proceedings in many ways—and bankruptcy trustees, the people tasked with reviewing your case, are familiar with all of them. Here are a few examples:
Not disclosing an asset transfer that took place before the bankruptcy filing might also be considered hiding assets.
The bankruptcy trustee is skilled at looking for any sign of hidden assets. The trustee might find hidden assets by reviewing your debts, public records, payroll deposits, bank records, and tax returns. It's also common for trustees to investigate asset reports from a former spouse, friend, coworker, or business partner.
If the bankruptcy trustee discovers that you have hidden assets and you've concealed or failed to list assets to hinder, delay, or defraud creditors, the bankruptcy court will take action. For instance, the court could deny your discharge or take even more extreme measures (more below).
The trustee will look for undisclosed income, property, and undervalued property. A trustee who notices something unusual in the paperwork or receives a tip about wrongdoing will use the tools described above to investigate.
The trustee can also inspect property, homes, businesses, storage units, sheds, and safe deposit boxes if a question arises about the thoroughness of the property disclosure or property values. Learn more about when the bankruptcy trustee suspects fraud.
Bankruptcy filers turn over many financial documents, including bank statements, when filing bankruptcy cases. The trustee receives the documents, verifies that deposits match income, and looks for unusual expenditures.
For instance, suppose your statements show you spending $1,000 monthly on DoorDash when you claim a $500 monthly food allowance. A trustee finding such a discrepancy might believe it indicated you have more money available than listed in the bankruptcy paperwork.
You are responsible for disclosing any inheritances received during bankruptcy and up to 180 days after a Chapter 7 bankruptcy filing. If you suspect you might receive an inheritance, consider delaying a filing because you might not be bankrupt.
The trustee has numerous avenues for finding hidden assets. One of the most common ways of finding inheritances is through tips from friends and relatives to whom you owe money. Telling the trustee is often the most straightforward way for them to get paid.
Yes, hiding any action in bankruptcy is a problem. You must report and exempt all assets, including cash, in your bankruptcy paperwork.
If you have assets you don't want to list in your bankruptcy filing, you might not be genuinely bankrupt. Instead, you might be seeking a way to defraud creditors of payment.
If you fail to list some of your assets or property on your bankruptcy papers and the trustee finds out, here's what might happen.
Again, hiding money in bankruptcy is never appropriate. However, you can use your cash or money to purchase the things you need before bankruptcy. For instance, most people drain their bank accounts before filing by paying regular monthly bills, making needed car repairs, and purchasing necessary clothing items.
Although this strategy is legal, it's a good idea to track how you spend the money in case a trustee inquires. Selling or using nonexempt property to purchase an exempt asset might also be possible. However, some courts frown on this practice, so speak with a bankruptcy lawyer first.
Receiving a tip about assets after your case is closed will likely prompt an FBI investigation if fraud is involved. If that occurred, you'd have more to worry about than losing an asset or two.
If you don't list assets that the law allows you to keep, you might not be allowed to claim your right to those assets once discovered. That said, some assets are easier to forget about than others when you're filling out your bankruptcy schedules, such as things you haven't received yet.
Some examples of assets you might forget to list are:
You'll want to amend your bankruptcy petition to disclose the asset immediately as soon as you realize the mistake. Taking corrective action quickly will help establish that the omission was unintentional.
The last thing you want is a problem in bankruptcy court—and there's no reason to subject yourself to such a problem. Most bankruptcy lawyers can help you achieve your goals in a manner that keeps you out of trouble or, at the very least, help you recognize that attempts to defraud creditors aren't worth the risk.
Learn about your options if you can't afford a bankruptcy lawyer.
Did you know Nolo has made the law accessible for over fifty years? It's true, and we want to ensure you find what you need. Below, you'll find more articles explaining how bankruptcy works. And don't forget that our bankruptcy homepage is the best place to start if you have other questions!
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We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.