Recently I spoke with a potential candidate for bankruptcy. They were pleasant, but not too forthcoming. The conversation was going well until I recommended a time for a potential filing, and the candidate mentioned having to dispose of some assets. I asked what those were, and the answer was, in effect, “none of your business.”
Unfortunately, it was my business and because of that, I couldn’t agree to represent this person without knowing about any transfers. Why is this?
First, all bankruptcy paperwork is submitted and filed under the penalty of perjury. You cannot lie in your paperwork, and that includes failing to disclose transfers of assets in the pre-bankruptcy time frames asked in certain questions.
Bankruptcy is an adjustment of the debtor-creditor relationship and in exchange for reorganizing debts or discharging debt, you have to disclose information about your assets, creditors, budget, and financial history. One of the reasons for this is to ensure that debtors don’t simply give away all assets before filing to hide them from creditors. That sort of concealment could actually result in the denial of a discharge, which is the worst outcome a debtor could have, other than facing criminal charges for Bankruptcy Fraud.
Much of the information in the bankruptcy paperwork is on the honor system, and we rely on our clients to be candid and truthful in their paperwork to avoid further investigation by a bankruptcy trustee, the United States Trustee, or the Bankruptcy Judge. If these parties find out that the information the debtor swore to in their paperwork is wrong, this can cause big problems.
As attorneys for debtors, we also swear that we conduct reasonable investigations. If we notice, for instance, that recent tax returns showed mortgage interest paid, but there is no house listed as an asset, we would have to ask why. We have a reputation we’ve earned over 20+ years that we don’t want to lose because we think it would be helpful to a client to help cover up a lie.
We ask questions in the process of preparing a bankruptcy because the questions are necessary, to be honest and complete in filling out bankruptcy paperwork. Thousands of clients would agree that it was worth it to complete the disclosures in order to get a fresh start or a reorganization completed. If someone does not want to disclose information to us, they do not have to, but we cannot be their lawyers or file bankruptcy for them.
If you have concerns about something you’ll have to disclose in bankruptcy, please talk to us and we can help explore your options. That may include selling an asset before bankruptcy or taking some other necessary step. As long as these transactions are disclosed and accounted for, you can almost always proceed with a bankruptcy filing and be fine. But the failure to tell us – and the courts – about something serious is far worse than anything you’d risk by staying silent and hoping nobody finds out. When we know all the relevant facts, we can live up to our motto and be here to help. Contact us today with any questions.