31 Aug Why You Should Tell Your Attorney Everything About Your Finances
The penalty for intentionally failing to be complete with the information on your bankruptcy petition and schedules can be a Federal criminal offense punishable by a sentence of up to 5 years in jail and a fine of up to $250,000.00. Under cetain circumstances, the attorney filing such a petition can also be sanction by the Bankruptcy Court costing thousands.
Recently while walking into the hearing room for the Trustee’s First Meeting of Creditors, I overheard a lawyer talking with his clients who were trying to be quiet. “Attorney Smith, my husband has something to tell you.”, the wife said. “Yes?” “Well, I forgot to tell you that my name is on my mother’s house.” “Oh? Did you mother give it to you?” “No, she died.” “When?” “Ten years ago.” “So she left it to you?” “No, to me and my three brothers. My brother Billy gave his part to me for $10,000 five years ago and my other two brothers still live in the house.”
“So, there are three owners of the house?” “No, my brother Pete gave his part to my other brother, Rocco.” “For $10,000?” “Naw, he gave his part of the house over so we could refinance it. He still lives there with Rocco.” “When was that?” “Eight weeks ago. He needed to borrow money to pay his bills so he wouldn’t have to file for bankruptcy. I had to go to his lawyer’s office to sign some papers and I completely forgot all about it.”
This is a serious problem on several fronts. First, there is property that was not listed on the petition. That property may have real value which could be used to pay the clients’ creditors. Second, since the client did not get any of the proceeds from the closing, Rocco got a transfer which can be undone by the Trustee. So the money he got to use to stay out of bankruptcy will come into the bankruptcy court. If he doesn’t have it, he could be forced into bankruptcy himself. The creditors that Rocco paid could be forced to cough up the cash they got as payment. Then there is the question of whether the attorney could have discovered the client’s omission.
Clearly in this situation, the client simply was not paying close attention to financial details which is probably what got him into trouble in the first place. But I did witness another case where the Debtor failed to list the Porsche that he gave his son, the 12 room house on 6 acres that he gave to his sister and the airplane that he gave to his daughter. And who ratted him out? His ex-wife. The debtor should finishing up his jail sentence about now. The records are full of examples of successful prosecutions.