The problem even the best bankruptcy lawyer can’t fix is the one you hide.

Sometimes  it’s a problem you don’t want to face yourself, or a debt your spouse doesn’t know about.

Maybe it’s a claim you hope to bring after the bankruptcy.

You’re tempted just to say nothing to your bankruptcy lawyer.  Who will know?

Think again.

When the truth is threatening

You’ve probably heard lots of the myths about bankruptcy floating around.

Then there are the stories from people who knew someone whose friend’s cousin  filed bankruptcy some time back.

He didn’t tell everything and it worked out.

Maybe or maybe not.

People visiting a bankruptcy lawyer for the first time often are tempted to conceal debts, property, or transactions from their lawyer in the belief that if the lawyer had the facts, they would be barred from bankruptcy relief. That is seldom so.

Your lawyer can’t protect you from problems created by secrets you keep. With all the facts, your lawyer can provide meaningful advice that maximizes the relief available in bankruptcy.

Hide your secret from your bankruptcy lawyer and you may have a problem far bigger than the one you’re trying to hide.

Full disclosure is the price of relief

Bankruptcy is grounded in full disclosure to the court and creditors.  In exchange for transparency about your finances, you get a discharge of your dischargeable debts.

More importantly, your bankruptcy papers are signed under penalty of perjury.  Get caught in a deliberate lie and you may lose the opportunity for a discharge of all of your current debts.  One of the grounds for denial of discharge is “false oath”.

Perjury is a federal crime.  You could find yourself the guest of Uncle Sam for up to five years.

The time-worn saying in bankruptcy is that it’s the X’s that will get you:  the ex-spouse, the ex-partner, or the ex-friend.

Those folks may have a motive to call you out in court.

The trustee has a right to examine your tax returns, your bank statements, and your check register.

Secrets are hard to keep.

Get your money’s worth from your lawyer

Usually the things people hope to keep from me are penny-ante things.  When it is disclosed, I often find that what the client was worrying about  isn’t really a worry at all.

When the secret does present a complication, we can look for a work around:

• undoing the transfer,
• filing Chapter 13,
• waiting to file til the secret is no longer a problem.

But I can’t fix things I don’t know about.

Start by making full disclosure to your bankruptcy lawyer. Your lawyer is on your side.

Image courtesy of Sandilya Theuerkauf and Wikimedia.

I cringe when a client says that they’ve researched bankruptcy on the internet before making an appointment with me.

For every sound, balanced, nuanced article on consumers and their debts, there are bunches of sloppy, inaccurate sites, often trying to make bankruptcy so frightening that you’ll buy whatever they’re selling.

But when a group of bankruptcy lawyers, trying, I’d assume, to provide useful information on bankruptcy get it so wrong, I’m perplexed.

Bankruptcy Home, which identifies itself as a group advertising site for bankruptcy lawyers, has community property absolutely wrong.  At least California community property, which is all I’m licensed to deal with.

When one spouse in a community property state files bankruptcy, the site says, the debtor must include the value of one half of the community property.  Wrong, wrong, wrong!

I don’t know whether these lawyers haven’t read the bankruptcy code or haven’t read the site that they pay for.  Neither alternative is flattering to them.

All Community Property Comes In

Here’s what  section 541 of the bankruptcy code says:

 (a) The commencement of a case …creates an estate. Such estate is comprised of all the following property…

(2) All interests of the debtor and the debtor’s spouse in community property as of the commencement of the case that is—

 (A) under the sole, equal, or joint management and control of the debtor; or

(B) liable for an allowable claim against the debtor, or for both an allowable claim against the debtor and an allowable claim against the debtor’s spouse, to the extent that such interest is so liable.

I first wrote this piece in 2012.  I checked the Bankruptcy Home site before republishing this post. That site remains uncorrected.

Image courtesy of Tambako the Jaguar.

The do- it- yourself spirit seems especially strong in bankruptcy courts these days.

Only it often comes with a big price tag.

Nearly 45% of the Central District CA Chapter 7 cases were filed by individuals doing it themselves.  The national rules committee is drafting new bankruptcy forms with the unrepresented in mind.

Why do people take such a momentous step as filing bankruptcy without an attorney?

They go it alone, without a lawyer, for three reasons:

1. They assume they can’t afford a lawyer.
2. They assume that there are no consequences for doing it badly.
3. They assume it’s “just filing out forms”.

What bankruptcy filing entails

Southern California bankruptcy lawyer Jay Fleischman outlined the steps in a bankruptcy case.  Each of those decisions is one a pro per ( a person representing themselves in court) has to make  to file their own bankruptcy case.

It’s a pretty daunting list. [Read more…]