Bankruptcy Problems You Can Avoid: Undisclosed Assets

The United States Bankruptcy Code obligates you to make a full disclosure of your financial affairs when you file bankruptcy.  You must list all of your debts, reveal detailed information about your income and expenses, and you must reveal information about your assets.

In my 24 years of practice I have found that undisclosed asset issues arise far more often than unlisted debt problems or budget issues.  I suspect that it is easier to collect information about your debts – you can get a credit report, save collection letters and track the phone calls.  Hidden assets, however, can sometimes slip your mind, and can create huge problems.  Stated simply, any property that you own, or that you may have a right to own should be disclosed–at least to your lawyer for an opinion.

Here are some examples of assets that have created problems for my clients over the years:

Unexpected inheritance–the Bankruptcy Code provides that any inheritance received within 6 months of discharge is property of your bankruptcy estate.  Therefore, if you are thinking about filing for bankruptcy, think about the possibility that you could inherit money from a relative, especially if that relative is older or in poor health.  If a lot of money is at stake, you and/or your relative may wish to consult with an estate planning lawyer who can discuss estate planning tools that might protect your relative’s funds.  I recently had a case in which my client’s father created a “spend-thrift” trust that provided for distributions to my client at the discretion of a trustee but protected the corpus of the trust – which was several hundred thousand dollars – from seizure by a bankruptcy trustee.

Contingent claims–if you have been in an accident or otherwise have a claim for damages against another person, that claim is an asset and must be listed.  If you do not list the asset, then proceed through bankruptcy to discharge, and later attempt to pursue your claim, your failure to list the asset can serve as bar to recovery.  This will depend on your state’s law, but in general, let your bankruptcy attorney know if you have or may have any type of claim against any person.

Paper title–several years ago, I represented a debtor in Chapter 7 who discovered after he filed that his mother had added his name to the title of her paid-for home.  My client had filed his case “pro se” and came to me after the trustee made a demand for turnover of half of the equity.  In this case the trustee had checked the deed records at the local county courthouse and discovered the transfer.  My client’s mother had to take out a mortgage on the house to raise the funds to buy the trustee out of his interest – this problem could have been avoided if my client had thought to ask his elderly mother if she had made this transfer.

Accounts receivable–over the years I have represented a number of small business owners who have come to me to file bankruptcy because of cash flow problems.  Often this type of client’s personal and business lives are intermingled and a personal bankruptcy also serves to bankrupt the business as well.  In these cases I always ask about accounts receiveable.  Receiveables are assets and must be listed.  If the business is incorporated, the shares of the business may have a value equal to the receivables.  Often it can be hard to keep a business going when the owner files a personal bankruptcy – here is where you need good legal advice to help you decide if and when to file.

Often, issues that will become significant problems in bankruptcy can be resolved if your attorney knows about the potential problem before you file.  Sometimes, holding off a few months or engaging in attorney supervised pre-bankruptcy planning can make a big difference.  I hope that this blog post will help by making you think about situations in your own case that could, but need not, turn into a bankruptcy problem.

Special thanks to Atlanta Bankruptcy Lawyer Jonathan Ginsberg for this guest post.  Jonathan’s also member of Bankruptcy Law Network.  If you’re in Atlanta and need a bankruptcy lawyer, I’d highly recommend Jonathan.

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