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?)

What Can Happen If You Hide Your 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 that 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 (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 revoke or take back your discharge. The trustee can do this at any time before the case closes or, even after, 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 debts that you list 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.

How Do People Hide Assets?

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:

• 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 which took place before the bankruptcy filing might also be considered hiding assets.

How Will the Trustee Find Hidden 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:

• a review of your debts (such as lots of furniture store debt but very little furniture)
• public record searches
• online asset searches
• payroll slips showing deposits into unlisted bank accounts or retirement accounts
• bank records and tax returns, and
• reports from a former spouse, friend, coworker, or business partner.

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.)

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 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:

• 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).

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.)

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, 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?)

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