Here’s the deal when you file bankruptcy.  You tell the truth. You disclose everything.  You keep what is exempt.  The trustee takes everything else and distributes that among your creditors.  In exchange you get a fresh start.

The idea of bankruptcy is to get a discharge of all your debts so you get a fresh start.

But you must keep your part of the bargain!

When you sign your bankruptcy papers, you swear, under oath, that you have told the truth. You swear, under oath, that you have listed all your assets.  And you swear, under oath, that you have told all about your financial affairs.

Not only that, but when you testify to the trustee during your meeting of creditors, you’ll be sworn under oath too.  You’ll be asked to tell the truth, the whole truth and nothing but the truth.

Very bad things can happen if you don’t tell the truth.  This includes things you omit as will as things you might even fib about.

• Your discharge could be delayed
• Your discharge could be denied
• Your case could be referred for criminal prosecution for bankruptcy fraud
• You could be fined
• You could go to jail

Tell your lawyer everything.  Here are some things you should tell your lawyer about – even if you think you don’t have to:

• Cash not in the bank
• Lawsuits you are thinking about filing
• Inheritances you may get
• Debt’s you have recently repaid to your family
• Transfers you’ve made to anyone, particularly for less than the asset is worth.

In bankruptcy, remember the deal.  An honest debtor gets a fresh start.  A dishonest debtor may face serious consequences.

Your bankruptcy lawyer will ask you to list all of your assets and all of your debts.

When you go to meet your bankruptcy trustee, you might be asked, “Do you own any real estate anyplace in the world?” Or you might be asked “Do you have any bank accounts or investment accounts outside of the United States.”

We live in a very small world. People in the United States come from just about everywhere. And they may have left behind assets from places they used to live. Or they may have inherited property from relatives overseas.

When you file a bankruptcy case in the United States, it includes all property anyplace in the world. It includes real estate and personal property. It includes bank accounts and investments. It includes everything.

It’s an extremely bad idea to leave out any property you own from your bankruptcy petition, even if it is in a country far away. You’d be surprised how often you’ll be asked about it. And there may be reference to it on your tax return or other official document. You really can’t hide this sort of thing and you really ought not hide assets you might have someplace else.

Hiding assets might result in:

• Loss of your discharge
• Loss of your right to claim any exemptions
• Criminal prosecution
• Loss of the property

Your bankruptcy trustee will have the right to pursue any significant property overseas. Your bankruptcy trustee could ask the bankruptcy court to compel you to turn over the overseas property. If you fail to do so, you could be held in contempt of court or even worse. Its a slippery slope and probably one of the worst things that you can do.

When filing your bankruptcy case, tell your lawyer everything. Don’t hide anything. An honest debtor will get a fresh start. A dishonest debtor can suffer major consequences.

Lakelaw helps people in Illinois and Wisconsin file bankruptcy cases, even if they have assets outside of the United States. Call us today for help in your difficult bankruptcy case at 1 866 LAKELAW (525-3529).

If you file a bankruptcy case, you have to disclose all your assets.  You have to show your bank statements to the bankruptcy trustee.  You have to show your tax returns to the trustee too.  It’s not as easy as you think to hide assets. Nobody will believe that you don’t have a checking account.  Nobody will believe that you don’t have a savings account.  That’s particularly true if you make even a middle-class income.

Today, I saw a debtor get into a world of trouble.  He said, under oath, in his schedules that he had no bank account and no savings account.  But the trustee found out that the debtor did have bank accounts.  He got the bank records.  The debtor had over $8000 in the bank on the date he filed his bankruptcy petition.  He also had a big tax refund coming which he neglected to mention.

This is a huge problem.  What kind of bad things can happen to this debtor who was caught red handed lying to the trustee?

• The debtor will have to come up with that $8,000
• The debtor will have to give up his income tax refund
• The trustee can make a criminal referral to the United States Trustee or the U. S. Attorney
• The trustee can file a complaint to bar the debtor’s discharge in bankruptcy

Essentially, the debtor’s false statements under oath result in the worst of all possible worlds.  The debtor has a bankruptcy on his credit report for 10 years.  The debtor loses all of his non-exempt assets.  The debtor can’t get rid of the debts he had as of the date of his bankruptcy.  And the debtor faces the risk of criminal prosecution.

My advice?  Don’t let this happen to you.  Tell your bankruptcy lawyer everything.  Be honest.  Don’t hide assets.  Remember, in bankruptcy, an honest debtor can get a fresh start.  A dishonest debtor can have all kinds of books thrown at him.

Lakelaw represents honest debtors in bankruptcy cases in Illinois and Wisconsin.  Call us at 1 866 LAKELAW (525-3529).

When you file bankruptcy whether you file a Chapter 7 or a Chapter 13  you must file a Statement of Financial Affairs.  Brett Weiss has written several articles on the Statement of Financial Affairs. Question 10 asks you questions about transfers in the last year prior to filing.    The trustee will use this information to discover what you have done with assets before filing bankruptcy.  The question is designed to ferret out information about fraud.  Did you transfer an asset that could have been sold to pay your creditors?

In a 341 meeting recently the trustee asked the debtor if she knew the person that she transferred a vehicle to.  She replied three separate times that she did not.  The trustee then asked; “Why did you claim the same person on your 2008 tax return if you did not know them?”  The debtor commented that the person was her partner’s nephew but he was not a relative of hers.  The trustee said then the answer should have reflected that inside of saying that he was a stranger.

The trustee was a little irritated that the debtor did not list accurate information.  I don’t think the debtor was intentionally lying.  I believe the debtor did not want people involved in her personal life.  However, when you file bankruptcy it is public record and you are asking for the Bankruptcy Court to wipe out your debt.  In order to receive this benefit you must answer the questions truthfully or face a perjury charge.

Be accurate and truthful when you fill out the information for your attorney.  We, as attorneys, cannot advise you or protect you if you are not honest with us.  Bankruptcy is not a game of hide and seek.    If you are not sure about listing something,  ask.!   Not asking could land you in Leavenworth or some other federal prison.

Remember that knowledge is power and the more knowledge you have, the more power you will have to stay out of prison.

Written by Kansas City, Missouri Bankruptcy Attorney, Rachel Lynn Foley.

Chapter 7 trustees are paid the small sum of $60 for administering each case.  The real money a trustee makes is from finding and selling assets, and no asset is more favored than cash.

According to the statutory formula, in addition to the paltry fee of $60 per case, Chapter 7 trustees are paid a commission from distributions to creditors of liquidated assets recovered in cases:

25% of the first $5,000;
10% of the next $45,000;
5% of the next $950,000; and
3% of the balance.

Trustees love cash because cash is, by its very definition, already liquidated. There’s no realtor needed, no insurance to purchase, no storage to worry about, and no fees to be paid to sell cash. It’s already cash, and cash is king.

Why does this matter to you? If you’re filing bankruptcy, you get to claim exemptions in property of various types. Exemptions allow you to keep certain property.  For example, in South Carolina where I practice, each debtor is allowed to protect up to $51,450 in equity in their residence.  That allowance is what we call an exemption.

As you select exemptions, it’s important to apply those exemptions to the cash you have and by cash I mean bank accounts, tax refunds, and similar assets.  Why? Because for other types of property, the trustee has costs of sale.

Let’s take one example. Suppose you have what we call here in South Carolina a “trash truck.” It’s a truck you use to haul trash and other items. It’s old, but it runs well.  Let’s say it’s worth $2,000. You only have $2,000 left of an exemption, and you can use it for either this truck or $2,000 in a tax refund.  The best approach would be to use the exemption for the tax refund, not the truck.  Why? The trustee might only get $750 or so at auction for the trash truck.  On top of that, he’ll have to pay other amounts, like a fee to the auction company, storage fees, and legal fees. You stand a good chance of him declaring the case a “no asset” case and not even bothering to sell the truck, since the profit margin is so low.

But what if the trustee decides to sell the truck despite the low profit he can make? Claiming your exemption in the cash instead still makes sense, because you could then offer the trustee a cash settlement to release the bankruptcy estate’s claim to the truck. In our example, maybe you’d offer $500.  In any event, the trustee will take less than the $2,000.

One warning: If you have cash, don’t even think about hiding this from either your attorney or the trustee.  Cash in the mattress, in a safe, in your brother-in-law’s house, or anywhere else is still your property. You must declare it in your bankruptcy case just like money in the bank. Failure to do so is bankruptcy fraud, which is a felony.

Remember: Trustees dream of cash. Plan your exemptions accordingly.

Russell A. DeMott is a Charleston, South Carolina bankruptcy lawyer representing debtors in Chapter 7 and Chapter 13 bankruptcy.

One of the questions you will need to answer when you file your bankruptcy schedules is how much cash you have.  This means how much cash you have in each and every bank account, savings account, money market account, buried somewhere, someone else is holding for you, that you have  on your person, in your wallet, in your piggy-bank, in the cookie jar, and so on.   

Most people don’t have a lot of cash but I am running into more and more clients who don’t understand what cash means.  If you are not sure it falls into the cash and/or bank account category, please discuss the item in question with your attorney. 

If you don’t list everything you own, you are committing a bankruptcy crime that could cause you to not get your bankruptcy discharge.

Divorced debtors should take extra care to insure that all information on their bankruptcy schedules is completely accurate.

When a client’s been divorced, that raises red flags for me.  Are there “hold harmless” type debts that might not be dischargeable in Chapter 7?  Should we consider a Chapter 13?  How much alimony is the debtor required to pay? How much child support?  Are these obligations current?

Another issue that always comes to mind is the debtor’s need to make sure that his bankruptcy schedules are accurate. Perfection is always the goal when filing a bankruptcy case, but it’s really important when there’s a former spouse out there.

If there’s an alimony or child support obligation, the former spouse will get notice of the bankruptcy even if the support obligations are current.  And if there are debts which the debtor has been ordered to pay for which the former spouse is jointly liable, the former spouse must also get notice as a co-debtor.

I always tell my clients to plan on the former spouse getting a copy of their bankruptcy schedules and reading every words on those schedules.  This isn’t because I think my clients are liars; it’s because even an innocent, inadvertent omission will look very bad if the former spouse reports the omission to the trustee.

I have a case on my desk at this moment in which the former wife of a debtor–not my client, thankfully–has indicated that various sources of income were not disclosed.  She may or may not be right.  If she is, though, that could spell big trouble for that debtor.

Even more so than with “normal” cases, I would suggest that those of you who are divorced should make absolutely certain that all your income, expenses, assets, and liabilities–along with all other information in your bankruptcy scehdules–are completely accurate.  Go slow, and be thorough.  Don’t leave anything out.

To borrow a line from a country song from several years ago, all your ex’s might live in Texas, but they can still cause you BIG problems in Tennessee–or in any other state!

Russell A. DeMott is a bankruptcy attorney representing Chapter 7 and Chapter 13 debtors in the Charleston, South Carolina area.

I wanted to share 13 tips from the FBI before filing bankruptcy.  I often tell clients that lying to the court is a crime, but often they do not believe me.  So many times you will hear of stories of debtors who filed bankruptcy and did not disclose assets such as a boat, land or collectibles.   These debtors often got away with discharging the debt and keeping the asset.  Notice that I specifically identified the past tense in that sentence.  The days of playing hide and seek with assets or creditors in bankruptcy are long gone.

These stories make it incredibly difficult to convince the client that they must list all their assets and all their debts.   So please allow me to share the 13 tips as I want to make it perfectly clear that lying on your bankruptcy petition or schedules can land you in prison.

Here are 13 tips to keep in mind before filing for bankruptcy:

1. All creditors must be listed, even the ones you intend to pay after the case is filed.

2. Many assets are protected from being seized by the bankruptcy court, but only if they are listed. It is a crime not to list all property.

3. Part, or all, of any tax refund due for the tax year a bankruptcy case is filed may be required to be turned over to a bankruptcy trustee. Any refunds that are due for previous years may be required to be turned over.

4. You must list all business information if you are self-employed. If you are in business you must list all personal and business debts, assets and income.

5. All income must be reported, including Social Security benefits, family support, alimony, unemployment, and pensions.

6. Intentionally incurring debts with the intent not to pay may be a crime.

7. You should maintain payments on all secured property that you wish to keep that could be repossessed before the case is filed. This includes house payments, car payments, furniture payments, equipment, and other items used as collateral.

8. The court may disallow a bankruptcy if you misrepresent any facts or otherwise lie on the papers filed in court for the bankruptcy.

9. Bankruptcy stops all bill collectors. Creditors, including tax collectors, are barred from attempting to collect any debt from you the instant the petition is filed. This protection is permanent for all discharged debts. Bankruptcy does not stop any criminal proceeding or government regulatory proceeding.

10. Bankruptcy does not clear up a credit report. It may be reported on credit reports for 10 years.

11. You cannot dismiss a Chapter 7 case without court approval. You can voluntarily dismiss a Chapter 13 case anytime.

12. A secured creditor may add the attorney fees they incurred to the balance owed on the property. This may happen even if you are not behind on payments at the time the bankruptcy is filed. Most mortgages and other loan documents provide that reasonable attorney fees are allowed and will be added to the balance due on a loan.

13. Bankruptcy crimes carry a punishment by, among other things, imprisonment for up to five years. It is a bankruptcy crime to: conceal property from the court or bankruptcy trustee; knowingly and fraudulently make a false oath or account; knowingly transfer or conceal property to defraud creditors; conceal, destroy, mutilate, or falsify records or documents; and file a bankruptcy petition to deceive or defraud.

Every week I see more cases being sent to the U.S. Trustee to review for claims of bankruptcy fraud. Bottom line, do not lie on your bankruptcy petition.  You may get away with it but is it worth taking a chance in committing perjury and paying a fine of $250,000 or spending 5 years in prison? If your answer is no then do not lie to your attorney.  We cannot protect you if you lie.

Remember that knowledge is power and bankruptcy is not a game!  The more knowledge you have the more power you will have to avoid bankruptcy crimes.

Written by Rachel Lynn Foley, Kansas City Missouri Bankruptcy Attorney.

Most people want simple, clear, answers to a few simple questions about bankruptcy.  Sometimes the answer depends on your circumstances.  Most bankruptcy lawyers, however, turn the tables and ask a whole lot of questions before answering the client’s questions.

Because every case is different, it’s dangerous to generalize without some factual background.  While it is no substitute for a consultation with an experienced bankruptcy lawyer, below are some of the most frequently asked questions that have a straightforward answer.

Hopefully these answers will help you decide whether you need to explore the bankruptcy option further.

1.  Do I have to list my house even though I intend to keep paying for it? Yes, you do.  See, I gave you a straight, simple answer, no ifs, no qualifications.  No “it depends.”  You have to list everything you own when you file bankruptcy, even if (especially if) you intend to keep it.  Does that mean you will lose it?  The answer to that one is “it depends,” but probably not.

I hear from a number of clients that someone they know filed bankruptcy and didn’t list their house.  That is probably a misunderstanding, because most people who own their homes and file bankruptcy keep their homes and continue to make payments.  So in layman’s terms, bankruptcy didn’t affect the house.  But you still have to list it.

It bears repeating, though, that does NOT mean you are going to lose your house.  If that would be the outcome, you would obviously choose not to file.  So, go talk to a bankruptcy lawyer and let him look at your individual situation and tell you what options you have, and what is the likely outcome.

2.  What happens if I don’t list my house? Well, first of all, you’ll need to find another lawyer.  One of my professional goals is not to see my clients go to jail.  An even more important goal for me is to avoid going to jail myself.

Not listing all your assets is, plain and simple, bankruptcy fraud, and it’s a crime.  The FBI investigates, the grand jury indicts, and they haul you off to the pokey.  I have never met anyone who had any asset that I thought was worth  a stint in the slammer.  In fact, most of the time this comes up, it doesn’t matter.  The vast majority of cases do not result in the loss of any property.

3.  How will they know if I don’t list it? The answer to this one is easy when you’re talking real estate, because real estate records are public and anyone can find out whether you own real property.

Other types of property may not be officially public record, but when people try to conceal assets, they are found out in the oddest ways.  One of my local trustees discovered a debtor hadn’t listed assets when he happened to see a want ad offering to sell some items that hadn’t been listed.

Often creditors have information either about purchase of assets, or financial statements listing your assets, and creditors have every incentive to help the trustee locate assets.

Bottom line, it really doesn’t matter how someone would know if you fail to list assets.  What matters is that it makes no sense at all to risk it.   Talk to your attorney about all of your assets.  She can tell what will happen depending on the type of bankruptcy you are considering, and how to handle any consequences.

4.  Should I transfer my house (or car, or baseball card collection) to a friend or relative to keep it from my creditors? Actually, this is a question I wish more people ask before they do it.  It may seem like a good idea, but it isn’t.  When you transfer any property to keep your creditors from reaching it, it’s called a fraudulent transfer, it is a bad thing, and it can be undone.  In fact, if you transfer property in fraud of creditors it may preclude receiving a discharge, so a bankruptcy would do you no good.   I have talked to any number of people over the years who have made such a transfer before coming to see me, and I can’t help them.  And usually they have transferred property that they would have been able to keep as exempt anyway.   Not smart, and not necessary.

5.  Do I have enough debt to file bankruptcy? This, too, is a common misconception.  You don’t have to have any particular amount of debt, and you don’t have to be behind, or have any particular debt structure to file bankruptcy.

Now, you may have so little debt that it doesn’t make sense to file bankruptcy, or that it makes better sense to file a Chapter 13 payment plan rather than a Chapter 7 liquidation, but there is no qualifying amount.  If you feel financial pressure, and you aren’t able to make progress paying down principal, bankruptcy may be appropriate.

The only real qualifying factor is that you act in good faith and not abuse the bankruptcy system.

Come back for Part Two of frequently asked bankruptcy questions.

The new bankruptcy law, BAPCPA (“Bankruptcy Abuse Prevention and Consumer Protection Act”) requires that a debtor’s assets must be valued at “replacement cost.”  In fact, if you meet with your attorney, he will give you a notice required by section 527(c) of the Bankruptcy Code, which probably explains valuation similar to this section from the disclosure form I use:

(1) HOW TO VALUE ASSETS AT REPLACEMENT VALUE:

You must determine how much your personal property is worth as it is today. Do not value your property based upon what you can sell it for. Instead, value it at what you would have to pay to replace it. If your property is new or close to new, consider retail value adjusted to whatever extent appropriate for the amount the property has been used. If there is a market for your property as used, you may use that market to determine value. For example, you may consider using thrift store prices or prices at house or garage sales or at a secondary marketplace such as eBay to determine what it would cost you to replace your personal property.  [emphasis added].

The notice has always been a bit puzzling to me.  On one hand it says, “do not value your property based upon what you can sell it for.”  And on the other hand it actually mentions “house or garage sales.”  Huh? Isn’t that what I could sell it for?

Prior to BAPCPA going into effect, I routinely told my clients to value their “stuff” at garage sale values.  I now tell them to value it at what I call “Goodwill Store value.”  In other words, what would their couch, chairs, dining room table, and so on, sell for at a retail store selling used goods?  I have a theory that it would be strangely similar to what the item would sell for at a garage sale, but, maybe not.  Maybe Goodwill or a consignment shop can get the item sold at a slightly higher price.

The bigger issue is: what does it matter? Every time I think about valuation-and I mean valuation of anything at all: real estate, stocks, bonds, sofas, dining room tables, guns-I think back to a story about a law professor at the University of Michigan law school who taught in the 1940s.  Anytime he discussed valuation, he took his pen and tapped on the podium while staying over and over, “the worth of a thing is the price it will bring…the worth of a thing is the price it will bring…the worth of a thing is the price it will bring.”

By the end of the class, the students understood valuation.  And the fact that I am now, in 2009, still using that wise professor’s statement is a testament to his legacy as a great teacher.  What was true in the 1940s is just as true in 2009.  Sure enough, the worth of a thing is the price it will bring.

How does this relate to bankruptcy law under BAPCPA?  There are two things to understand when discussing valuation in bankruptcy: (1) Disclosure and (2) Reality.

First, let’s be perfectly honest.  We really have no idea what most of our “stuff” is worth.  For cars we can start with published guides like the NADA or Kelly Blue Book.  For real estate, we can look at “comparables” to help us choose a value.  But how much is my used TV worth?  I have no idea.  I’ll just guess and say $500.  Maybe I’ve even looked at eBay as the disclosure form suggests.

Let’s say my TV sells between $400 and $600.  $500 would be a pretty good guess.  I could then go through the property I have and come up with estimates.  Some items I could find on eBay; others I would not be able to find.  So I start to guess.  $400 for this, $30 for that, and so on.

Let’s say I’m valuing household goods.  Maybe I add up everything in my house and my best guess is that my goods are worth $4,000.  To be safe, I would usually add some to the valuation.  I might think that the property is worth $4,500 in the “worth of a thing is the price it will bring” sense, but I’d probably state the value at $6,000 or so-maybe even more.  Likewise, if I have a collection, or some unique item, I would list the item and state that I am unsure of the value of the item.

Why?  Because if I ever make a mistake in valuation, it most certainly won’t be viewed as an honest mistake.  The Trustee, United States Trustee’s Office, and maybe even the judge if the matter gets before her, will give me the look I call a “second shooter-on-the-grassy-knoll” look.  In other words, they may suspect that the mistake was a deliberate result of a conspiracy between the debtor and his attorney.  Then, the debtor and I have real problem.  Lying on bankruptcy schedules is a federal crime, and it can also give rise to a denial of discharge, which is the order from the court stating that the debts are no longer owed.  Think of the discharge as the Holy Grail of the bankruptcy quest.

So when you make a disclosure as to the value of your property, always guess high.  Guessing low can cause problems.  And if you really don’t know, put that in your schedules as well.

We’ll discuss the second topic, “Reality,” in “Valuation of Assets in Bankruptcy: Does it Really Matter?  (Part Two).”

Written by Charleston Bankruptcy Lawyer, Russell A. DeMott