Filing for bankruptcy is a transparent process. In exchange for having your debts discharged (wiped out), you must list on your bankruptcy papers your income, everything you own, and all your debts.
If you don’t fully disclose your assets and recent asset transfers, you won’t be entitled to a discharge of those debts in the current case or in a subsequent bankruptcy, and you might also be subject to criminal penalties.
(For background information, read What Is Bankruptcy Fraud?)
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.
People try to hide assets in bankruptcy proceedings in many ways—and bankruptcy trustees are familiar with all of them. Here are a few examples:
Not disclosing an asset transfer which took place before the bankruptcy filing might also be considered hiding assets.
The bankruptcy trustee appointed to review your case is skilled at looking for any sign of hidden assets. The trustee might find hidden assets by any of the following:
If the bankruptcy trustee discovers that you have hidden assets, the trustee will file a lawsuit (called an adversary proceeding) in the bankruptcy court. If the court finds you have failed to list or have concealed assets with the intent to hinder, delay or defraud creditors, it will deny your discharge.
(You can learn more by reading When the Bankruptcy Trustee Suspects Fraud.)
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 they’ve been discovered. That said, some assets are easier to forget about than others when you’re filling out your bankruptcy schedules, such things you haven’t received yet.
Some examples of assets you might forget to list are:
As soon as you realize the mistake, you ’ll want to file papers to disclose the asset immediately. The court won’t deny or revoke your discharge if the circumstances show that you didn’t intend to hinder, delay or defraud creditors—and taking corrective action before someone else discovers the omission will help.
(For an explanation about fixing bankruptcy errors, see How to Amend a Bankruptcy Form.)
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, a bankruptcy attorney will help you understand why trying to skirt bankruptcy laws won’t be worth the perceived benefit.
(You’ll find helpful information in Why Should I Hire a Bankruptcy Lawyer?)