Transparency is the essential ingredient in bankruptcy. The name of the game is disclosure.
In exchange for full disclosure of assets, debts, and financial history, you get a discharge.
Everyone with notice of your case is bound by the outcome of the filing if you do it right.
Disclosure costs you nothing and it insulates you from charges that you’ve has concealed property of value or otherwise been less than candid with the court.
That lack of candor can cost you big time, from the loss of confidence in your filings by judge and trustee; to charges of perjury or criminal fraud; to loss of the discharge.
This is serious stuff.
My questionnaire for clients says repeatedly that you must disclose all of your assets, yet I get back questionnaires showing no clothing (did they come to my office in a barrel?), no bank accounts, no furniture, no car, etc.
Sometimes, the client doesn’t have the kind of property in question.
But more often, they made assumptions. They assumed that 1) if the account was overdrawn, they didn’t have to list it; 2) if the clothing was worth little, they didn’t have to list it; 3) if the bank had a lien on it, they didn’t have to list it.
The erroneous assumptions go on.
I declined representation in a case this week that promised a five figure retainer in large part because I believed that I could not get the prospective client to take seriously the need to be open and candid with the court.
If you want to keep any asset, tangible or intangible, after the bankruptcy, list it in your schedules.
Throwing away assets
My colleague lawyer Jay Fleischman wrote about the consequences of failing to disclose the right to sue for a violation of consumer law in the bankruptcy schedules.
There’s a sneaky legal doctrine used by lawyers on the other side of your lawsuit: judicial estoppel. It boils down to this:
if you said in the bankruptcy schedules that you didn’t have such an asset, you are barred later from claiming you have a legal right that you didn’t list.
It usually doesn’t matter if the omission was innocent or calculating. The result is too often forfeiture of the claim.
That way, you also get to keep the discharge, the real prize in this exercise.