“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

Filing Bankruptcy and Keeping Your House.

Detroit, Michigan houseMost of my clients who file for bankruptcy in Michigan want to know if they can keep their house or home if they file under Chapter 7. Debtors are allowed to keep all exempt property. Exemptions are used to protect your assets. An asset is anything with value so the first determination is the value of the house and real estate. Some debtors are going to lose their house just because they can’t afford it.

In the current real estate market, real property is taking a beating. If your house is worth less than what you owe, then it isn’t really an asset. If you sold it, what would you get? A Chapter 7 Trustee is only interested in assets. An underwater house isn’t an asset. It’s usually your biggest debt. If this the case, you can keep it your underwater house. Lucky you.

If the house has some equity, you will have to use your your homestead exemption to protect that equity. You can protect up to $20,200 in equity using the federal exemption 11 USC 522(d)(1). If you are married and it is jointly held, you can double this exemption. That’s a lot of equity you can protect. Most of my clients in the Detroit, Michigan area and the surrounding cities like those in Taylor and the Downriver area don’t even come close to that kind of equity.

If the house has more equity than your exemption allows, there is a really good chance the Chapter 7 Trustee will be looking in to selling or liquidating the house. You would still get to keep your exempt amount. For example, if a house is worth $100,000 and it has a secured mortgage with a balance of $50,000, you would have $50,000 in equity. If you were married, you could protect $40,400 which would leave $9,600 unprotected. The Trustee is going to want that and if that means the house has to be sold to get it, so be it.

If your situation is like that in the example, you may want to consider filing a Chapter 13 or be prepared to “buy” your non-exempt amount from the Trustee. The Trustee really doesn’t care where the money comes from as long as it is paid and can be paid to the unsecured creditors.

You can read more about exemptions, property, Chapter 7 and Chapter 13 in Michigan in my free e-book, The Bankruptcy Book.