By Kitty J. Lin
The entire bankruptcy process is designed to allow an honest person who needs help cleaning up their financial situation to get a fresh start free from creditor harassment and oppressive debt. Unfortunately some people try to have their cake and eat it too. They try to hide their assets so that creditors cannot get to the assets while at the same time trying to get their debts discharged. If the trustee assigned to the case, a creditor or U.S. Trustee finds these hidden assets they are jeopardizing their bankruptcy case and may even have criminal charges against them. To avoid this you should hire a bankruptcy attorney from the start of the bankruptcy process. Your bankruptcy lawyer can guide you and prepare your bankruptcy petition the right way. You need to be honest with your attorney and tell your attorney all the assets that you have. If all of your assets cannot be protected at least they can let you know what would be the best course of action for you to take.
If you lie to your attorney, fail to answer their questions honestly and leave out major assets your attorney will not be able to protect you or your assets. If you file a bankruptcy case yourself and then hire an attorney later on once things go south your attorney may try to help you as much as he or she can, but it may be too little too late. It is harder to try to clean up the mess once things go bad than to have it be prepared correctly in the first place. Most cases go smoothly even if there are some issues. If the trustee, creditor or U.S. Trustee does find hidden assets, here are some of the consequences that may occur.
Dismissal of Bankruptcy Case
A motion to dismiss the case with prejudice could be filed with the court. Not only will your current case be dismissed, but your debts could be determined nondischargeable and bar you from filing again for many years. If your bankruptcy case is dismissed your debts will not be discharged even though your credit report will indicate that you have filed for bankruptcy previously.
Loss of Discharge
If the trustee finds that you have lied or perjured yourself in your bankruptcy petition one of the results could be the loss of your bankruptcy discharge. The discharge of your debt is the main reason people file for bankruptcy in the first place. Without the discharge you are still responsible for your debts and your creditors can still collect on that debt.
Loss of Undisclosed or Hidden Asset
If you are in a Chapter 7 bankruptcy case you may lose whatever asset was undisclosed or left out in your bankruptcy petition. The trustee can liquidate that asset and give the proceeds to your creditors in exchange for a discharge of your debt. The trustee is able to liquidate this asset because all assets you own are part of the bankruptcy estate and since it was not listed in your petition it was also not exempted in your Schedule C and therefore not protected. If it is not protected it can be liquidated.
Attempting to hide assets falls under the bankruptcy fraud category and it is a federal offense. If found guilty you could be fined up to $250,000 and/or spend up to five years in jail.
If you legitimately forgot to include a debt rather than intentionally hiding your asset in your bankruptcy petition you can try to convince your trustee you acted in good faith and just made a mistake. If the trustee does not believe you all is not lost. The ultimate decision is up to the bankruptcy court and the judge assigned to your case. If you can convince the judge that it was not intentional and the judge believes you, then you can still obtain a discharge of your debts.