18 Jul Bankruptcy and the Unknown Asset
If you are filing for bankruptcy but you have an asset that you don’t have information about, can you just put down “unknown” and leave it at that? That depends.
The short answer is that youcanfile your bankruptcy case without all your information, meaning it ispossibleto do it, however I don’t recommend it under most circumstances.
File at your own risk if you file without knowing all the answers
First and foremost, filing bankruptcywithout having all the information you need couldget you into a lot of trouble or complicate your case, depending on the circumstances, why, and how it is done. You don’t want your case to turn into a train wreck, but sometimes you don’t have a choice.
Problems you might face may besomething as simple (but humiliating) as being verbally reprimanded by a Trustee at a creditors meeting for not having the information on the bankruptcy petition, or it might involve more serious problems like motions,litigation, contempt/sanctions,and to being taken to court to have the judge determine what to do.
Unresolved issues in a bankruptcy case can drag out the bankruptcy proceedings for a long time, and tie up the debtor incourt for months or even years. The trustee can subpoenarecords from thepeoplewho mayhave information about assets of a bankruptcy estate, and they can also deposeor sue to get some answers.
Insome circumstances, the debtor may not only face monetary costs, loss of property, anddenial of discharge -but they can also face bankruptcy crime prosecution.
Bankruptcy fraud is a federal crime, and not something to be taken lightly.
I know it is frustrating having to deal with providing all the information your attorney asks for, but I assure you that it is done for your protection. When someone files Chapter 7 or 13, they choose to seek protection from creditors by using the bankruptcy laws. They must also follow the laws of disclosure: bankruptcy debtors arerequiredto provide accurateinformation on the petition.
If someone files a bankruptcy case and is tempted to list property as unknown because they simply don’t want to go tothe trouble of finding out the information,theymight just findthemselves having to explain why they did it to a judge, and they ought to be prepared to get an appraisal or hand over the property to the court.
In the rare situations that you just can’t come up with what something is worth and there is no way to find out, the only thing to do may be tolist a value or asset is as “unknown.” If the someone really can’t find out what the value of something is then “unknown” might be the onlyanswer you can give, but it also carries some risks.
That might be appropriate for something whose value can not be determined – like a one of a kind object that no one knows what it is worth, or for property that a client wouldhaveto incur high costs to appraise.
What if you don’t know what something is worth?
Any debtor should avoid problems in their bankruptcy case, to the extent that they can do so.You don’t want to deal with issues that could have been avoided with a little legwork.
Sometimes someone has an asset that isn’t an object, like a legal claim that’s worth hasn’t been determined yet, an interest in a trust, or a stock option. Or a hard to value item like art or land.
Listing something as unknownis not something you should so without making every attempt to get the answers first,andyou shouldn’t do this without discussing it withyourbankruptcy lawyer.
In those cases, the client should provide as much information as possible to thetrustee and cooperate as much as they can.
You should beas forthright as possible, be prepared for the property to be sold by the court liquidation to pay debts.
So in Chapter 7 cases, they should only do this if they understand and are willing tohand over the property to the trustee for sale, no matter what the value is. The debtor won’t have much of a say in it. The trustee can take control of the property and sell it for whatever he/she can get to pay towards the debts owed.
Chapter 13 might protect assets better than Chapter 7
This can also depend on the type of case that is filed. Chapter 7 trustees take control of property that is the debtor can’t keep, and they sell it to pay towards the debts.
Chapter 13 trustees don’t ordinarily take and sell property. In Chapter 13 bankruptcy cases, the debtor normally will retain the property and pay creditors for any non-exempt value. The debtor might propose that they will sell the property and turn over the excess funds to pay their debts.
A Chapter 13 reorganization can allow someone to keep non-exempt property but they will have to put a value on the property to be able to come up with a plan of payment. So for repayment bankruptcy cases, it may be necessary to determine what the value is. If you are going to put it up for sale other than at auction, at some point you have to know what it is worth to know what you should ask for it.
In either Chapter 7 or Chapter 13, it is best to get a good idea of property values
First figure out what you would do if you wanted to sell the asset – even if it is difficult to do.
Once the case is filed, it is harder to change course. You can’t easily turn back if you find out that you just handed over something that could have paid off your debts in full.
Idon’t normally recommendgiving up property without having a generalidea ofwhat you are giving up but how much you owe, what protection are looking for with the bankruptcy filing, and what benefits you get are all factors to weigh.
For examplemaybe someone isn’t sure of a value but theyare pretty sure it is worth no more than $X. If the debt owed to creditors is many times morethan what you think the property is worth, you might determine that filing makes sense whatever the property is worth since you know you are going to be discharged from your debts.
Just as common is a bankruptcy filed where someone is paying a plan to keep property, and they later find that they paid much more than it was really worth.
So even if you aren’t quite sure of values, disclose as much as you can, know what your goals for filing are, and know what you are giving up. Provide as complete and accurate information as you can to increase the chance of a quick and smooth journey through bankruptcy.
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