How will the Trustee know?

In honor of this fantastic new site and my 15^th year of practicing bankruptcy law, I decided to address the most dreaded question facing bankruptcy attorneys:
 

How will the trustee know?[1]
 

The short answer is that the trustee probably won’t, BUT . . .
 

A conscience is that intangible trait that separates human beings from the rest of ’em.  O.K., there is apparently some scientific evidence that monkeys and orangutans are also “self aware,” but hey, this is a bankruptcy blog.  From the moment we develop a conscience, we begin justifying to ourselves why we shouldn’t follow it.  We speed.  We cheat on our taxes.  We lie to our friends.  In order to keep our sanity in the process, we create reasons why these transgressions are necessary.
 

In the process of ignoring our conscience, we inevitably lose sight of the bigger picture.  You are reading this blog because you are contemplating bankruptcy.  You are miserable from the insurmountable financial ruin that has befallen you.  Creditors are constantly harassing you, and you cannot sleep.  Your chest is tight, and you feel the weight of your entire existence.  Bankruptcy is like a magic pill, and I frequently have clients shed tears of joy after I reveal how bankruptcy will literally change their lives forever.  However, at some point during every consultation, every client asks, “How will the trustee know?”
 

Usually, the dreaded question follows my explanation of how the trustee becomes the “owner” of everything belonging to the debtor, with the exception of certain exemptions afforded by law.  The question isn’t always spoken, but everyone is thinking it.
 

How will the trustee know . . . about my engagement ring?
How will the trustee know . . . that I have a personal injury case pending?
How will the trustee know . . . that I earn cash under the table?
 

You are asking yourself this question right now because you are human.  You know you’re wrong for asking, but you have already justified your transgression to your conscience.  In your mind, you have a perfectly good reason for asking that question.
 

This question poses a particularly complicated problem for me, your attorney.  Despite what you may have heard to the contrary, attorneys are human, and surprisingly, we have a conscience.  However, like all humans, we can be equally capable of suppressing our conscience by justifying wrongful behavior.  After all, we like you, and we hate credit card companies.  However, we also have a sworn duty as an officer of the Court to present only the truth, and we take that duty very seriously.
 

Therefore, I always answer the question as follows:
 

  The trustee probably won’t know, but failing to reveal this asset or information is fraud and a federal crime.  Don’t lose sight of the forest for the trees.  Bankruptcy is an opportunity to wipe out most all of your debt and start fresh.  It is not an opportunity to make a windfall profit.  The trustee does not want your engagement ring.  He or she wants cash.  Therefore, in almost every instance, you will be given the opportunity to “buy back” your non-exempt assets over time at no interest.  That money, when added to the cost of filing this bankruptcy, represents a small percentage of your overall debt.
   Furthermore, this will be the only bankruptcy case you will ever file.  The trustee has literally reviewed thousands of bankruptcy cases, and he or she is no dummy.  The trustee assumes every debtor is lying about something and will attempt to unearth the truth.  When it comes to asset investigation, the trustee is smarter than you.
  I assume that over the many years I have been representing debtors, there have been those that have knowingly failed to reveal facts or assets in their bankruptcy case, but I do not know about it.  If I know about it, I am duty bound to report it to the Court.
 

Don’t get me wrong.  I’m on your side!  If there is a legal way to shield an asset from the trustee, it is a bankruptcy attorney’s duty to advise the client how to do it.  This site and others across the internet extensively discuss how to legitimately reduce the trustee’s take.  We lawyers love pre-bankruptcy planning, and we pride ourselves on the ingenious ways we maximize the utility of bankruptcy.  

Just don’t ask us to cross the line.

See also I Have An Asset That I Don’t Want Taken From Me When I File Bankruptcy. Should I Give It To Someone Else Before I File?

   Copyright © Chip Parker.  All rights reserved.