How Will The Trustee Know? It Doesn’t Matter.

28 Jan How Will The Trustee Know? It Doesn’t Matter.

Filing for bankruptcy, whether it’s Chapter 7 or Chapter 13, requires disclosures of all of your assets. Over my career as a bankruptcy lawyer I’ve been asked the same dreaded question time and time again:How will the trustee know?

The short answer is that the trustee probably won’t know … BUT …

A conscience is that intangible trait that separates human beings from the rest of the animal kingdom. From the moment we develop a conscience, we begin justifying to ourselves why we shouldn’t follow it.

  • We speed.
  • We cheat on our taxes.
  • We lie to our friends.

In order to keep our sanity in the process, we create reasons why these transgressions are necessary. Disclosures are an invasion of our privacy to one extent or another.

In the process of ignoring our conscience, we inevitably lose sight of the bigger picture. You are reading this blog because you are contemplating bankruptcy. You are miserable from the insurmountable financial ruin that has befallen you. Creditors are constantly harassing you, and you cannot sleep. Your chest is tight, and you feel the weight of your entire existence.

Bankruptcy is like a magic pill, and I frequently have clients shed tears of joy after I reveal how bankruptcy will literally change their lives forever.

However, at some point during every consultation, every client asks, ‘How will the trustee know?’ Disclosures are scary, and we all want to keep our dealings private.

Usually, the dreaded question follows my explanation of how the trustee becomes the ‘owner’ of everything belonging to the debtor, with the exception of certain exemptions afforded by law. The question isn’t always spoken, but everyone is thinking it.

How will the trustee know . . . about my engagement ring?

How will the trustee know . . . that I have a personal injury case pending?

How will the trustee know . . . that I earn cash under the table?

You are asking yourself this question right now because you are human. You know you’re wrong for asking, but you have a perfectly good reason for asking the question and trying to figure out a way around the disclosures.

This question poses a particularly complicated problem for me, your attorney. Despite what you may have heard to the contrary, attorneys are human, and surprisingly, we have a conscience. However, like all humans, we can be equally capable of suppressing our conscience by justifying wrongful behavior. After all, we like you, and we hate credit card companies. However, we also have a sworn duty as an officer of the Court to present only the truth, and we take that duty very seriously. Disclosures are mandatory, and we don’t get the chance to sidestep the responsibilites.

Therefore, I always answer the question as follows:

The trustee probably won’t know, but failing to reveal this asset or information is fraud and a federal crime. Don’t lose sight of the forest for the trees. Bankruptcy is an opportunity to wipe out most all of your debt and start fresh. It is not an opportunity to make a windfall profit, and you’ve got to make all of your required disclosures. The trustee does not want your engagement ring. He or she wants cash. Therefore, in almost every instance, you will be given the opportunity to ‘buy back’ your non-exempt assets over time at no interest. That money, when added to the cost of filing this bankruptcy, represents a small percentage of your overall debt.

Furthermore, this will be the only bankruptcy case you will ever file. The trustee has literally reviewed thousands of bankruptcy cases, and he or she is no dummy. The trustee assumes every debtor is lying about something and will attempt to unearth the truth. When it comes to asset investigation, the trustee is smarter than you. Proper disclosures protect your rights in bankruptcy court.

I assume that over the many years I have been representing debtors, there have been those that have knowingly failed to reveal facts or assets in their bankruptcy case, but I do not know about it. If I know about it, I am duty bound to report it to the Court.

Don’t get me wrong. I’m on your side! If there is a legal way to shield an asset from the trustee, it is a bankruptcy attorney’s duty to advise the client how to do it. This site and others across the internet extensively discuss how to legitimately reduce the trustee’s take. We lawyers love pre-bankruptcy planning, and we pride ourselves on the ingenious ways we maximize the utility of bankruptcy.”

Just don’t ask us to cross the line.

Image credit:Beautification Syndrome/Flickr

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Chip Parker is the managing partner of Parker & DuFresne, P.A., where he represents Northeast Florida businesses and consumers facing bankruptcy, and homeowners facing foreclosure. His firm files more homeowners in the Mortgage Modification Mediation Program than any other law firm in Northeast Florida. Parker is the recipient of Jacksonville Area Legal Aid's prestigious Award for Outstanding Pro Bono Service. Mr. Parker is an active member of the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.
  • Bret Nason
    Posted at 10:41h, 28 April

    Excellent response to an often-asked question. I plan to use major parts of your answer as my own. That is, if I can rationalize it with my conscience……………

  • Ben Callicoat
    Posted at 09:08h, 29 April

    Love it!

    Very close to what I tell my clients, which is:

    “The bankruptcy process is built on self-disclosure and assumes that you will tell the truth. If you tell the truth, nothing bad will happen. If you don’t tell the truth, you could go to jail. Nothing you have is worth going to jail. If you think bankruptcy is embarrassing, just think about how much more embarrassing it would be to see your name on the front page of the newspaper next to the words “Bankruptcy Crime”.

    “Further, you have to tell me everything. If I know about it, I can almost always deal with a problem to your advantage. If I don’t know about it, I can’t help you.”