17 Jul Why You Need To List Proper Values On Your Bankruptcy Schedules
Do you think you can always amend the bankruptcy schedules later if it turns out there was more in the bank than was originally listed?
Think again — that’s the message of In re Barrows, No. 09-6003 ((8th Cir. BAP July 10, 2009).
In Barrows, the debtors were not allowed to amend their exemptions, thereby losing over $13,000.
They Didn’t Tell Their Lawyer
Before filing chapter 7, the debtors had told their lawyer that they had $325 in their bank account, based upon their average balance in the preceding months. Accordingly, the lawyer listed $325 as their bank balance in the bankruptcy schedules. However, before reviewing the schedules, the debtors received a $17,000 loan against the husband’s 401(k) account. They deposited the loan proceeds into their bank account.
Upon meeting with the lawyer to sign the bankruptcy schedules, the debtors failed to inform the lawyer of the greatly increased bank balance. Consequently, the schedules were filed with the erroneous figure of $325, when the actual bank balance was in excess of $13,000.
The Trustee Found Out
At the meeting of creditors, the debtors showed the trustee their bank statement, which showed the deposit of the $17,000 401(k) loan. The bank statement showed a balance of over $13,000 on the day the chapter 7 was filed. However, only $325 had been listed and claimed as exempt.
Accordingly, the trustee made a demand for turnover of the excess $13,000.
They Couldn’t Cover Their Tracks
The debtors responded by filing an amended set of exemptions, which attempted to exempt the entire bank balance. The debtors’ theory was that the listing of only $325 amounted to an oversight, and that amendments to exemptions should be liberally allowed.
The bankruptcy court denied the amended exemptions, and the Eighth Circuit Bankruptcy Appellate Panel agreed.
The debtors had signed their bankruptcy schedules under oath, and they had testified under oath at the meeting of creditors that their schedules were accurate. They were well aware of the 401(k) loan, and they had been actively spending it both before and after filing bankruptcy.
The court did not give credit to the debtors’ explanation that they assumed the trustee would notice the discrepancy by reviewing the bank statement. Instead, the court held that the debtors had acted in bad faith, and it denied their attempt to amend their exemptions.
You Can Avoid This Result
When you file for bankruptcy, be sure to tell your lawyer about everything you own.
Review the bankruptcy schedules to make sure all of your property – homes, cars, cash, bank accounts, belongings, and everything else – is listed and exempted.
If it isn’t listed, or isn’t exempted, make sure the schedules are updated.
In the end, this is your financial future. Best to get it right.
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