You must “tell the truth” on your bankruptcy schedules, bankruptcy advice sites intone.
Most of us shrug that off: we can’t imagine deliberately lying to a court.
But carelessness about bankruptcy schedules abounds.
If you give the bankruptcy process just a lick and a promise, the resulting schedules aren’t truthful, not because of lies, but because they aren’t complete.
Carelessness has consequences
When the debtor doesn’t take the time to consider all his legal rights and intangible assets; when he makes assumptions about what the law covers; and when he includes only the debts that represent trouble, he makes trouble for himself.
Bankruptcy schedules that are less than accurate allow judges and prosecutors to inquire as to the debtor’s motives. That’s not a good place to be as a debtor.
The bankruptcy bargain
Bankruptcy law sets up a bargain created between an individual and his creditors. Provide full financial disclosure and you get a discharge of your dischargeable debts.
The debtor lists everything he has and everyone he owes; the system allows him to walk away from debts he genuinely owes.
It’s a pretty good deal. One that isn’t available in every legal system.
The debtor who doesn’t make full disclosure doesn’t hold up his end of the bargain. Bad things, and even worse things, can follow.
Danger in sloppy schedules
Forfeit omitted assets
The least hurtful consequence of omitting assets from bankruptcy schedules is that you may not keep the asset. Most courts don’t allow the debtor to add omitted assets to their schedules and claim them exempt.
Our questionnaire for clients has the following heading on the assets page: list it or lose it.
One of the saddest consequences of leaving out a legal claim you may have is that your lawsuit may be dismissed by the trial court . Because the claim wasn’t listed on your bankruptcy schedules, which were signed under penalty of perjury, the trial court can conclude that you really don’t have a valid claim.
Omitted debts not discharged
Creditors who aren’t listed in the bankruptcy schedules can enforce their debts after the bankruptcy case is over. 11 USC 523(a)(3).
Some appeals courts temper that rule if the debt wasn’t potentially non dischargeable and if a Chapter 7 case made no distribution to creditors.
Do you want to live with the prospect that a creditor will pop up down the road and reopen your bankruptcy case, or, worse yet, file suit in state court?
The price of really misleading schedules gets higher. You can lose the right to a bankruptcy discharge altogether. Making a false oath in connection with the bankruptcy is a bar to the discharge.
Denial of discharge requires that the bad act be done knowingly and fraudulently. So, merely sloppy probably doesn’t cost you the discharge.
But who wants to give offended judges or trustees the opportunity to even raise the issue?
Lying on bankruptcy schedules is also a federal crime.
Get caught lying and you might not have to worry about grocery shopping for five years, while you’re a guest of Uncle Sam.
Filing bankruptcy is different
What a bankruptcy lawyer does in your case is markedly different from what most other kinds of lawyers do.
If you’re in a car accident, you can engage a personal injury lawyer, hand them the accident report, and rely on them to carry the ball a long way down the field without much help from you, the accident victim.
Not so in bankruptcy.
To file bankruptcy, you have to supply virtually all of the information needed for the bankruptcy filing. And there’s lots of information called for: past income levels; everyone you owe money to; projected budgets for living expenses; your intentions as to secured debts. None of that is independently available to your bankruptcy lawyer.
You provide quality control. You sign the schedules that your lawyer assembles under penalty of perjury.
You testify in person at the first meeting of creditors to their accuracy.
In bankruptcy, a good outcome is the result of a partnership between you and your bankruptcy lawyer. Take the schedules seriously, and your case is likely to be trouble free.