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Bankruptcy Disclosure: Don’t Let Orange Be The New Black

By Cathy Moran

Bankruptcy crime-do timeHow will anyone know?

That’s the question clients ask about assets that they don’t want to disclose on their bankruptcy schedules.

Clients are usually afraid of losing the property or of involving family and friends with the bankruptcy court.  They really just want to fly under the radar with their social circles.

Why do we have to include it?

Start with the news:  Lenny Dykstra, successful baseball player and formerly wealthy man, is going to prison for hiding assets in his bankruptcy.

He appeared in court in handcuffs and prison jump suit, with his family in the courtroom, for sentencing.

Bankruptcy is federal law, and messing with federal law gets you time in the Big House.  Dykstra was ordered to pay $200,000 in restitution.  By the way, restitution for a federal crime  is not dischargeable in bankruptcy.

The X factor

Often, it’s the ex’s that spill the beans.

Ex wives, ex partners, or ex friends.  People who know the debtor well and have some other ax to grind.

They’re the ones who tell the trustee about the missing stuff.

It’s in the paper

Other times, the trail of breadcrumbs is in the papers.  The tax return has depreciation for assets not scheduled or accounted for on the statement of financial affairs.

When I represented a Chapter 7 trustee, I uncovered a hidden property from the insurance bill in the debtor’s budget.

The bankruptcy bargain

The deal in bankruptcy is that in exchange for full disclosure of their financial condition, debtors get a discharge of most of their debts.

Shortchange the system by not making full disclosure and you risk not only denial of the discharge, but time in the slammer.

My experience is that so often the assets my clients want to conceal do not really create the problem that the client envisions.

Either the asset has a low liquidation value, it is protectable with an exemption , or Chapter 13 solves the problem.

But once a bankruptcy case is filed  that omits significant assets, there is very little I can do, as an attorney, about the assets the client conceals from me.

Read more

The assets you don’t know you own

Take the bankruptcy papers seriously

 Image courtesy of The Comedian.

 

 

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Filed Under: How bankruptcy works

About Cathy Moran

I'm a veteran bankruptcy lawyer and consumer advocate in California's Silicon Valley. I write, teach, and speak in the hopes of expanding understanding of how bankruptcy can make life better in a family's future.

Trackbacks

  1. In bankruptcy, "property" has a special, very broad meaning. | South Carolina Bankruptcy Lawyer Lex A. Rogerson says:
    December 14, 2012 at 2:58 pm

    […] Everyone who files banruptcy must disclose all their property in schedules filed with the court. Omitting property can keep a debtor from receiving a discharge of debts and, in a flagrant case, could even result in criminal prosecution. […]

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About The Soapbox

You've arrived at the Bankruptcy Soapbox, a resource of bankruptcy information and consumer law.

Soapbox is a companion site to Bankruptcy in Brief, where I try to be largely explanatory and even handed (Note I said "try").

Here, I allow myself to tell stories and express strong opinions on how I think law should work for the consumer and small businesses when it comes to debt.

Moran Law Group
Bankruptcy specialists for individuals and small businesses in the San Francisco Bay Area

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