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:
- Lie, the Big Mortgage Industry
- Lien
- Lien Stripping
- Lift the Stay
- Luxuries
- Long Term Payments, Chapter 13 Plans
- Liquidated
- Lien Stripping
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.
