25 Sep Disclose, Disclose, Disclose For Successful Bankruptcy
If your bankruptcy attorney is a member of the National Association of Consumer Bankruptcy Attorneys [NACBA] chances are that attorney participates in a list service discussion of issues along with other bankruptcy attorneys across the country. The NACBA list allows member attorneys to share practice tips and discuss emerging trends.
A recent discussion illustrates the need for accurate preparation of the bankruptcy paperwork and shows what could happen if proper procedures are not followed.
A debtor who filed bankruptcy did not disclose ownership of a pending personal injury claim. After the bankruptcy case concluded the debtor settled the injury claim. Debtor, the personal injury lawyer who worked the case and several medical providers received payment from the settlement. Later the bankruptcy trustee learned about the settlement and demanded all of that money.
At this point is it important for the reader to understand some basic bankruptcy principles. A debtor files bankruptcy by submitting a Petition and Schedules to the court. The Schedules contain questions designed to identify all assets and all debts, along with questions about debtorâ€™s financial affairs. A personal injury claim must be disclosed on Schedule B of Personal Property. A lawsuit must be disclosed on the Statement of Financial Affairs. Assets that are not exempt constitute the bankruptcy estate. The trustee is charged with collecting assets of the estate for the benefit of creditors. A professional person, such as an attorney, seeking payment from an estate asset, such as a personal injury claim, must first be approved and hired by the court.
Case decisions vary from state to state but generally under a theory of judicial estoppel, a failure to disclose an asset results in debtor losing that asset to the bankruptcy estate. In other words, debtor loses the ability to exempt [exclude] a portion of the asset from the estate; or debtor loses the ability to receive any remainder leftover after all creditors are paid. Also, professionals are not permitted to receive payment from estate assets without prior approval and employment by the court. And the debtor could be denied a discharge of any remaining debt.
Because the consequences are severe, a good bankruptcy attorney will personally meet with the new client and compile the answers for each and every question, instead of relying on a paralegal or secretary. This allows the attorney to explain the question, to clarify confusion, to detect evasive answers and to repeat questions in different ways to insure accuracy. The attorney, as a skillful interrogator, can cross examine the client to prepare an accurate case.
In addition to answering the question about personal injury claims and the question about lawsuits, debtor is required to sign and certify the accuracy of the Petition and Schedules. And a few weeks after filing a case each debtor must appear and before a trustee and testify under penalty of perjury.
Trustees typically ask debtor some variation of these questions:
Are you personally familiar with the documents?
Did you meet with your attorney and provide the information for this case?
Did you read the schedules before signing?
Did you include all your assets?
Are the documents true and correct?
Are there any corrections or changes you want to bring to my attention?
Can I rely on these documents as being correct?
And typically debtors answer affirmatively to each of these questions, leaving debtor no room to change the story or to blame anyone else if the trustee finds non-disclosed assets. But a debtor who hides assets and falsifies information only has oneself to blame. For this reason, I follow the advice of a wise bankruptcy attorney who taught me to always ask one final interview question: Now tell me everything you do not want listed on your bankruptcy. Then include that information on the Petition and Schedules.
Andy Miofsky, Esq.
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