Disclosure of Assets and Supplying Due Diligence Documentation in Bankruptcy

11 Oct Disclosure of Assets and Supplying Due Diligence Documentation in Bankruptcy

Filing for Bankruptcy is no walk in the park. It is an extensive process, with significant document gathering and processing, in addition to research, disclosures, and sometimes multiple court and trustee hearings. Nevertheless, the more work done up front, the smoother the process will be. One such area involves compiling all the due diligence documents trustees require and disclosing all assets. I had written about such documents in the past for the Southern District of California. However, due to present economic conditions fueling the increase in bankruptcy case loads and new and often inexperienced attorneys entering the bankruptcy field, compliance issues continue to affect Trustees calendars. Not only does failing to comply affect the administration of bankruptcy cases, but it may even cost you your discharge!

Unfortunately, a few unprepared cases each hour on the Trustees calendar affects everyone, including those that fully comply with providing complete information. Thus cases are delayed where they should not be and unnecessary time is wasted. Matters are continued or trailed, hearings run longer than required, and frustration sets in to everyone at the hearing room.

What can you do? First of all, make sure you hire an experienced bankruptcy attorney, preferably one that practices in no other fields except bankruptcy. As with any field, there are many incompetent bankruptcy attorneys presently practicing who will sell you a rosy picture at the initial interview and happily take your money, but provide substandard service. A good rule of thumb is to hire an attorney with at least 5 years experience and/or over 1,000 case filings. An attorney that charges 20% less than the competition, who advises you the process only takes a few hours of attorney time, or does not spend at least 30 to 60 minutes with you at the initial consultation is almost always a red flag to run for the hills.

In addition, remember the adage disclose, disclose, disclose. Disclosure is to bankruptcy as Location is to real estate. There is no such thing as too much disclosure, only too less. All too often debtors forget to disclose assets and previous asset transfers. Remember, all your assets create a new entity called a bankruptcy estate when your case is filed. Such assets include everything you own, from obvious items such as clothing, furniture, cars, homes, jewelry to the not so obvious items such as food in the pantry, toilet paper, patents, copyrights, licenses, trusts, garbage, toothpaste, etc. Just as important as those assets are the creation of new assets that usually only take place in bankruptcy through the trustee s avoidance powers. These new assets arise from asset transfers in the months and years prior to the filing date. Yes, the $20 birthday gift you sent 3 years ago could technically become as asset of the estate! So please, DISCLOSE EVERYTHING!

Finally, be sure to get your attorney all the documents requested, and in a timely fashion. Believe it or not, such documentation actually saves you much time in the long run, notwithstanding all the time saved for trustees, attorneys, judges, and other court personnel. But more importantly, documentation gathering will ensure you comply with the disclosure requirements, submit accurate bankruptcy schedules, and eventually obtain a discharge as planned.

Below is a recent email sent to Bankruptcy Attorneys throughout San Diego County from one of the Chapter 7 Panel Trustees. The email describes a case where the debtor did not comply with disclosure requirements and the consequences of the same. Simple disclosure and attorney competence could have probably prevented the outcome. Hopefully, debtors and their attorneys will take heed to the email, comply with the guidelines, improve the efficiency of bankruptcy case management, and avoid such adverse consequences:

Yesterday I had the unpleasant task of seeking a revocation of discharge on debtors for their failure to disclose assets, and their reckless and indifferent attention to the data filed via their Schedules and SFA, response to the Questionnaire at the 341, and testimony at the 341. Judge Meyers revoked their discharge after a full day trial. I, personally, do not like to take these actions but am forced to do so to fulfil my duties under 11 USC 704 when presented with facts that cannot be set aside.


The purpose of this e-mail is to reinforce to all bankruptcy debtor attorneys and their staffs the importance of full and complete disclosure of any and all possible assets, as well as preference payments in the Schedules and SFA, and the supporting documentation related to those assets as we request in our Standing Administrative Guidelines. I have long been concerned that many debtors do not fully understand, or take lightly, the importance of such and choose to simply say they “rely on my attorney” or it was just a simple oversight. That is especially glaring where the attorney of record does not appear, but sends special counsel that does not appear to understand the case enough to give advice to the debtor or be able to respond to questions of the trustee and/or creditors. The debtors yesterday offered the defense of “reliance on my attorney,” and “oversight” completely ignoring their own responsibility to actually read and understand what they had disclosed (or failed to disclose) in those documents and to correct any “oversights” promptly. In this particular case, these debtors indicated they had not even seen their attorney but briefly on two occasions with non-attorney staff “doing all the work.”


As you all know, I ask every debtor whether or not they have read and understand the information filed with the Court, as I am sure my fellow Panel members do also. Our Questionnaire further requires the appearing attorney to verify they have gone over the Questions with the debtors and clarified anything the debtors did not understand. Question number 1 asks the debtors if they read and understand the Schedules and SFA and discussed them with their attorney. I go further and ask for confirmation that they have read those documents at least two times to get on record this information in the event I am presented with another of these unpleasant tasks to seek denial of or revocation of discharge., minimizing the “oversight” defense and encouraging each debtor to be thorough, ask questions of his or her attorney, and avoid unpleasant consequences for reckless conduct.


Accordingly, I seek your assistance in avoidance of these issues that result in severe hardship for debtors if their discharge is denied, as well as potential allegations by these debtors against their attorney for obvious complaints.


Thank you for your anticipated help.

So always remember: DISCLOSE, DISCLOSE, DISCLOSE and provide all documents your attorney requests of you. Those two simple actions go a long ways when it comes to filing for Bankruptcy protection.


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