Hiding Assets in Bankruptcy

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.

How Do People Hide Assets and Cash in Chapter 7 and Chapter 13 Bankruptcy?

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:

• lying about owning assets
• transferring assets into someone else's name or giving them to someone to hold, and
• creating fake liens or mortgages to make the assets seem like they have no value.

Not disclosing an asset transfer that took place before the bankruptcy filing might also be considered hiding assets.

How Does a Bankruptcy Trustee Find Hidden 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).

What Does the Bankruptcy Trustee Look for or Investigate?

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.

Does the Bankruptcy Court Look at Bank Statements?

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.

How Can a Trustee Find Out About an Inheritance?

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.

Is Hiding Cash During Chapter 7 a Problem?

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.

What Can Happen If You Hide Property?

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.

• You won't be able to discharge your debts. If you hide assets from the bankruptcy court, you won't be entitled to receive a discharge (the order that wipes out qualifying debt) and will continue to owe all of the debt you were trying to get rid of in bankruptcy. But your case won't be dismissed in Chapter 7 bankruptcy. The property you're not allowed to keep or "exempt" under the law will still have to be turned over to the trustee assigned to your case and sold to pay your creditors. You'll continue to owe any amount not paid through the bankruptcy.
• The trustee can revoke your discharge. If the trustee finds hidden assets, the trustee can ask the court to take back your discharge. The trustee can do this before the case closes and up to one year after the discharge date. Learn more in What Happens If My Bankruptcy Discharge Is Revoked?
• You cannot discharge those debts in subsequent bankruptcies. The obligations listed in any bankruptcy where your discharge was denied or revoked for hiding assets cannot be discharged in a subsequent bankruptcy filing.
• You could face criminal charges. You sign your bankruptcy schedules listing your assets under penalty of perjury, representing that they are true and accurate. The penalty for bankruptcy fraud is a fine of up to $250,000, imprisonment for up to twenty years, or both.

What's the Best Way to "Hide" Money Legally?

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.

Can the Bankruptcy Trustee Take Assets After Discharge?

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.

What Happens If You Honestly Forget to List an Asset?

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:

• lawsuits you have filed or potential lawsuits, including personal injury claims and insurance claims
• lottery winnings or annuities which you receive in payments over time
• beneficial interests in trusts
• retirement benefits, even if you are not yet receiving them
• inheritances or potential inheritances that have not been sorted out by the probate court yet, and
• co-owned assets (bank accounts, real estate, automobiles, remainder interests).

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.

Meet With a Bankruptcy Lawyer

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.

Need More Bankruptcy Help?

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!

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.