Telling the Truth in Bankruptcy
Bankruptcy is a unique law that is actually designed for our benefit! The only way to screw-up the amazing benefits is by lying.
I always tell my clients, “the only way bankruptcy leaves you worse-off than when you started, is if you lie.”
This usually comes up after a client proposes to “not disclose an asset” or does not want to disclose a fraudulent transfer of money or property.
My response is always the same: “Tell the truth. Otherwise, we face potential perjury ramifications, or denial of discharge…” Essentially, a lot of bad things that are certainly not worth it. Bankruptcy is a great benefit that is available to the citizens of the United States. It exists to give us a second (or third, or fourth…) chance at a fresh start. It offers the benefit of resetting our debts to $0, and allows most of my clients to keep all their assets!! The worst-case scenario (if you tell the truth) is the bankruptcy could take an asset or two that are not protected in a bankruptcy, sell the asset, and use the sale proceeds to repay some of your debts (don’t worry, this doesn’t just come out of the clear blue sky; your attorney will tell you BEFORE you file if any of your assets are at risk). Meanwhile, THE REST OF YOUR DEBTS ARE FORGIVEN (with the exception of a few). That is an amazing benefit available to the “honest, but unfortunate debtor” through the bankruptcy code.
If you lie about your assets or other relevant financial dealings, on the other hand, that’s the only time a bankruptcy can start to get you in trouble. The court could:
1) Deny/revoke your discharge from your debts
2) Charge you with perjury
3) Charge you with bankruptcy fraud
4) Deny an exemption that you might have otherwise been entitled to
For example, I had a client that had a 20% ownership in an LLC. His 20% share was worth approximately $30,000. We filed for chapter 7 bankruptcy with the knowledge that his 20% share would probably get taken by the trustee, sold, and the proceeds used to pay off his debt. And whatever debt that was not paid off, got discharged by the bankruptcy! My client gets a fresh start and all he had to give up was an LLC ownership that he didn’t want anyways.
But if the client had tried to hide the asset, the situation would be much different. The United States Trustee would depose my client to determine if he had committed perjury when he filed his bankruptcy. That might be followed by an action to deny the entire discharge of my client. And potentially federal perjury, and bankruptcy fraud charges that could bring with it jail time. Suddenly, my client is facing bad life-changing actions, instead of getting a fresh start.
A lot of old sayings come to mind when I think of a situation like this, but it all boils down to: Don’t be too greedy. I mean, the opportunity to get out from under tens-of-thousands-of-dollars, even MILLIONS, in debt is available to us, let’s not screw up that bankruptcy benefit by lying about our situations.
The Bottom Line: Be honest with your lawyer, and your lawyer will find the best way forward for you. Often, there’s a way in bankruptcy to keep ALL your assets that you may have been contemplating “hiding.” Or, your lawyer will tell you what you ARE allowed to do with assets to maximize your benefit from them prior to filing, without screwing up your bankruptcy (or life).
Let me help you navigate the bankruptcy code, it's easy and beneficial!
Lucas M. Ruffing, Bankruptcy Attorney