“U” Is For Unlisted Assets In Bankruptcy

Properly listing your assets in bankruptcy is critical.  A debtor’s failure to disclose or significantly undervalue assets in the bankruptcy Petition and Schedules can have serious consequences. Courts have consistently held that debtors have an absolute duty to report whatever interest they have in property even if they believe their assets are worthless or are unavailable to the bankruptcy estate. At a minimum, a failure to report an asset may mean the filer loses the asset but this isn’t a worst case scenario. In some cases, the court may outright deny a discharge and dismiss the bankruptcy case. If a bankruptcy discharge is denied, the debtor will never be allowed to file again and discharge the listed debts.

Here are some real life examples of failures to properly list assets and the consequences.

  • A debtor failed to list a potential lawsuit. The debtor lost the cause of action and was unable to sue after the bankruptcy.
  • A Chapter 7 petitioner didn’t report an insurance claim he had against his insurance company.  He lost the right to collect the insurance proceeds.
  • The debtor didn’t list assets and, consequently, didn’t exempt them. The non-exempt assets were turned over to the trustee.
  • A bankruptcy filer didn’t list money owed to him by corporations that he owned. The debtor’s case was dismissed and he was denied a discharge.
  • Where a Chapter 13 debtor failed to properly explain why he had $72,000 deposited into his bank account eight days after filing for bankruptcy, a discharge was denied.
  • A debtor undervalued his interest in a corporation and the court found that he purposefully hid assets. The case was dismissed and a discharge was denied.
  • A petitioner failed to list significant assets in his bankruptcy petition. The debtor sought to dismiss the case. The court denied his request to dismiss the case and ordered the seizure of the undisclosed assets for liquidation and distribution to his creditors.

As you can see, there are serious consequences for concealing, undervaluing or failing to list assets. In an absolute worst case scenario, a debtor can be prosecuted for bankruptcy fraud and, if convicted, may face fines and prison. When you disclose your assets to your attorney, think as expansively as possible about all property rights you may have. If your grandma put your name on her house to avoid probate, then you have an interest in real estate that must be disclosed. Just because you don’t feel like you own it, if your name is on the deed, you do. If your assets don’t make you a good candidate for bankruptcy, then don’t file. But when in doubt, disclose, disclose, disclose.

“U” also stands for:

Chris McAvoy is a Taylor, Michigan attorney and consumer bankruptcy lawyer who helps people file Chapter 7 and Chapter 13 Bankruptcy. To find out more about bankruptcy, click here for contact info. We help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, and the Downriver, Michigan area.

photo by: takomabibelot

“L” Stands For List It Or Lose It

Letter L The primary duty of a debtor in bankruptcy is to disclose everything. This includes all present or future interest in assets and property. The basic rule of thumb is “list it or lose it.” Failure to list and exempt an asset in bankruptcy can, and usually does, result in losing that asset at a minimum and loss of your discharge and prosecution at a maximum. Clients typically forget to list everything that they own that has value. If the case is still open, you can amend your petition and include the asset and exempt it if you have available exemptions.

Debtors must disclose all assets.

The big problem comes when you forget to list an asset and never amend. A typical example I see here in Michigan: Inexperienced bankruptcy attorneys failing to list the debtor’s potential Federal and State tax refunds and credits. The result? The Trustee will keep the case open and wait for the refunds to come, intercept them from the IRS and distribute them to the creditors pro rata. Happens all the time.

If you intentionally fail to disclose an item, like a Rolex watch or classic car, and it is discovered, your case can be reopened and your discharge revoked. This means that your will lose the benefit of the discharge for your creditors forever and cannot file a new bankruptcy to get rid of those debts. Want more bad news? You will still lose the undisclosed assets and may even be prosecuted for bankruptcy fraud. I hope you look good in orange.

Even potential assets must be disclosed in bankruptcy.

Did you know that a potential lawsuit is an asset? It could be a personal injury lawsuit or a small claims case against your landlord for the return of a security deposit. These are assets even though they aren’t money in hand. The mere fact that a possible recovery exists triggers a duty to disclose. Again, the penalty to fail to disclose can result in a denial of discharge and the loss of the asset. You are swearing in your bankruptcy petition you have fully disclosed everything. If you don’t list the potential lawsuit as an asset, you will be bound by this. If you don’t list it, it must not exist and you will be barred, or estopped, from bringing the claim.

Sometimes assets acquired after filing bankruptcy must be disclosed.

Even after your case is closed, you may have a duty to go back and inform the court and Trustee of a new asset that didn’t even exist when you filed your case. Inheritances, life insurance benefits, even lottery winnings, are considered property of the bankruptcy estate if the debtor becomes entitled within 6 months of the date of filing. The debtor has to tell the court and Trustee of these new assets. Clearly the debtor wouldn’t know about these before the case was filed but once they do arise, if it is within those 180 days, the debtor must list them or lose them.

“L” also stands for:

Christopher McAvoy is a Taylor,  Michigan attorney and consumer bankruptcy lawyer who helps people file Chapter 7 and Chapter 13 Bankruptcy. To find out more about bankruptcy, click here for contact info. We help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, and the Downriver, Michigan area.

Creative Commons License photo credit: cdsessums

“I” Is For Income Tax Refunds

ITI Blue Black White Pink Blue Green
Federal and State income tax refunds and credits are treated like a savings account for most people. Income tax refunds are used to catch up on bills, make repairs, or buy some necessary household items. Clients want to keep their income tax refunds, creditors want to garnish them, and Trustees like to seize them. Read on for the essential guide on how you can file for bankruptcy and keep your income tax refunds in Michigan.

Chapter 7 and income tax refunds.

Income tax refunds and credits are considered an asset in a Chapter 7 bankruptcy and must be listed on Schedule B as property even if you aren’t sure what they will be. If you forget to list and exempt them, you may very well lose them to the Trustee. It doesn’t matter what month you file, you need to schedule them pro rata. For example, it is June of 2012 and you file bankruptcy.  You have to list your anticipated refunds for 2012. In 2011 you received $3,000 in Federal and State tax refunds and credits. Using that as a your guide, list half of the prior year’s refunds. Remember, this is June in our example and half the year is up. After the anticipated refund is scheduled, exempt them using your Federal d5 wildcard exemption and you are all set. Most pro se clients and a lot of rookie lawyers make this mistake to their detriment.

Chapter 13 and income tax refunds.

Here in the Eastern District of Michigan tax refunds are not handled the same in Chapter 13s are they are in 7s. If you don’t live here, your local custom may treat them differently. Anticipated Federal tax refunds are considered disposable income and are turned over to the Trustee for distribution to your creditors for as long as you are in bankruptcy. State of Michigan refunds and credits are yours to keep. If you are in your Chapter 13 you may be able to keep your refund if you can show a need, for example, you need the money to make a necessary car repair, buy a new stove, or make a home repair. You will need court permission to do this. Do not spend the money without court permission. Here is a quick tip: If you are expecting a tax refund, try to hold off on filing your Chapter 13 until after you have filed your returns and received your refunds. You will have to turn them over in the future, but you can get them one last time. After your Chapter 13 is completed, you can stop turning them over to the Trustee.

Garnishment of income tax refunds.

Filing for bankruptcy protects you from creditor garnishments. But what if you haven’t filed yet and you are worried judgment creditors will try to garnish your refunds. Federal refunds cannot be garnished from the IRS. They can only be garnished from your bank account after you have received them. State of Michigan refunds and credits can be garnished by a judgment creditors. Usually in the Fall of each year, creditors file garnishments. If you would like to keep you state tax refunds and are going to file for bankruptcy here is a really simple solution to keep them from being garnished: File your State tax returns after you file for bankruptcy. It’s just that simple. You don’t have to file your tax returns by April 15th of each year if you are owed money. You have up to three years to file and get your past refunds without penalty. The filing deadline is for people that owe taxes.

“I” also stands for:

Christopher McAvoy is a Taylor,  Michigan attorney and consumer bankruptcy lawyer who helps people in the  Downriver area  file Chapter 7 and Chapter 13 Bankruptcy. To find out more about bankruptcy, click here for contact info.

Creative Commons License photo credit: bixentro

“A” Is For Contract Assumption

gimme a!Bankruptcy eliminates contracts as well as debts.

An “assumption” occurs when a debtor agrees to continue performing obligations under a contract or lease. When a debtor files for bankruptcy protection from creditors, not only are debts eliminated, but so are the underlying contracts. Think about it. Your credit card is based on a contract for extension of credit. Remember that credit card application? When you buy a car or get a cell phone you need to sign a contract. Purchasing a house with a mortgage loan? That’s right. You signed a contract to pay the note back at the closing.

To assume or not to assume…That is the question.

Some contracts are secured by collateral, like a house or car, and some aren’t, like a typical credit card. A debtor must list their intentions regarding these debts. There are only two choices: assume or reject the agreement. Most all debts and contracts are rejected. Some are kept. The most common contract or lease assumption is for auto loans. Most auto lenders will repo your car if you don’t sign an agreement assuming, or keep, the debt. The terms are usually the same as the purchase but sometimes the debtor can negotiate more favorable terms.

A debt I never encourage a debtor to assume is the home mortgage.  Basically, you don’t need to. Your house will not be foreclosed if you don’t assume the debt. You remain the owner. Just keep making payments and you can stay in the home. You may want to change your mind and walk away from the house in the future. Don’t lock yourself in by assuming a house loan. Definitely don’t sign a second or third mortgage note especially if your house is upside-down.

Why would you want to assume that?

The one debt that every debtor usually agrees that they will not assume is a credit card. Why in the world would you agree to repay one of those? After all, didn’t you file bankruptcy to get rid of those? Some filers get nervous though that they will never get another credit card again. It may surprise you, but most of my clients get credit card offers in the mail about the same time they get their discharge. I know. It sounds crazy but it’s true. I can’t think of a single good reason why someone would assume a credit card debt.

“A” also stands for:

Christopher McAvoy is a Taylor,  Michigan attorney and consumer bankruptcy lawyer who helps people Downriver  file Chapter 7 and Chapter 13 Bankruptcy. To find out more about bankruptcy, read The Bankruptcy Book.


Disclosing Property And Assets In Bankruptcy

A debtor filing for bankruptcy protection must disclose all property rights, assets,  and interests. All property must be disclosed, even future, equitable, or contingent interests. What does that mean? You must list everything. The Bankruptcy Code defines what property  and it’s a lot more than what debtors may think it is. This includes anything that the debtor wants to keep or intends to exempt like a car, house, furniture or tax refunds. Everything you have an interest in becomes property of the bankruptcy estate.

In addition to the obvious items of personalty,  the debtor must include such things as:

  • All claims or lawsuits you have. Thinking of suing anyone? Better disclose it.
  • Future stock options or commissions.
  • Any right to inheritance from someone that has died up to 6 months after your case is filed.
  • All present or future tax refunds or credits.
  • Patents, copyrights, trademarks or any intellectual property.
  • Certificates of deposits, bonds, and any life insurance cash surrender value.

There are some things  that must be disclosed that is not part of the bankruptcy estate like a 401k or 403b. For that matter, any ERISA qualified plan is not property of the estate. Also, anything held for the debtor in a Living Trust that has spendthrift or anti-alienation language is also excluded. Whether or not something is or is not property of the bankruptcy estate or whether or now you want to keep or surrender anything, you must disclose everything you have any interest in.

Your property remains part of the bankruptcy estate until objections to the exemptions are final (usually 30 days after the 341 meeting) or the trustee abandons or declines to administer the estate for the benefit of creditors because the cost of liquidation exceeds the value or return. In any event, once the case is closed (or confirmed in most Chapter 13s), then your stuff  is once again all yours, your debt is wiped out, and you get your fresh start.