Bankruptcy Don’ts

1) Don’t Lie.
Don’t lie, don’t lie, DON’T LIE!!!!  There is a reason this is listed as number one.  Lying is the worst possible thing you can do in a bankruptcy.  Not only can it result in your bankruptcy being denied, it can also result in massive fines and prison time.  You heard that right, lying can and often will result in PRISON TIME.  Don’t believe me, as one of the stars of the Real Housewives who is currently serving time for lying to the bankruptcy court.  This means that you should make sure not to lie to your attorney as well, because that will lead to lying to the court.
2)  Don’t leave out assets.
Failing to list assets can be catastrophic.  In most bankruptcies a debtor is able to protect everything they own.  However, an asset that is not listed cannot be protected.  An unlisted asset will be found by your bankruptcy trustee, it will be sold and you will not see any of the proceeds from that sale.  Furthermore, if it is found that you left it off on purpose, well then we fall back to number 1.  NEVER LIE.  Your bankruptcy will be denied and you could serve time in jail.
 
3)  Don’t leave out creditors.
Under the bankruptcy code you are required to notify the court of the names and addresses of everyone you owe money to.  This doesn’t just mean the creditors you want to include.  It doesn’t just mean the creditors who are hounding you.  This doesn’t even mean just the creditors with a paper trail.  This means everyone who could possibly maintain a claim against you.  This includes parents, siblings and girlfriends.  If a creditor can prove that you intentionally left them off of your schedules we revert back to number 1.  NEVER LIE.  Your bankruptcy will be denied and you could serve time in jail.
4)  Don’t forget to disclose potential lawsuits/claims
As stated above, an individual filing for bankruptcy is required to list all of their assets.  A potential lawsuit or claim against a person or company is an asset.  Failure to list it can have all of the same ramifications as any other asset listed above.  However, in addition to all of the other pit falls, failure to list an asset can result in a court ruling of judicial estoppel.   In essence the court is stating that because you told the bankruptcy court that the claim didn’t exist, the court in which you file suit is going to take you at your word and rule that it doesn’t exist as well.  If you were expecting a multi-million dollar personal injury judgment, you can now consider that gone.
5)  Don’t payback any debts to a family member, friend or business associate
Many individuals who are in over their head are forced to go to their family or friends for loans to help them get by. As they struggle to avoid bankruptcy they are taking out loans from their mother, their childhood friend or their boss.  However, when those individuals start to contemplate the reality that they need to file, they want to funnel what little money they do have to pay off those close to them.  The problem is that these individuals are considered insiders.  Any money paid to an insider on a debt is recoverable by the Trustee.  What this means is that the Trustee will file a lawsuit against your loved ones to get the money back into your bankruptcy estate.  If you are considering bankruptcy you should speak with a qualified bankruptcy attorney BEFORE paying back anyone close to you.
6)  Don’t transfer assets out of your name
The worst idea almost every client has prior to coming into my office is to begin transferring assets out their name to “protect them”.  However, this misguided attempt to protect assets does just the opposite.  While exemptions may have been able to protect those assets, once they are transferred out of the debtors name they become fraudulent transfers.  The trustee can recover these assets without providing any compensation to the debtor.  This counts not only for physical assets like cars or boats, but also financial assets like bank accounts.  Nothing should be transferred out of your name without first discussing it with a qualified bankruptcy attorney.
7)  Don’t max out your credit cards prior to filing
A question that every bankruptcy attorney hears on a regular basis is:  If I am filing anyways, should I go on a shopping spree prior to filing and “maximize my benefit”.  The answer is a resounding NO.  When you borrow money you do so with an agreement to pay debt.  Bankruptcy relieves you of the burden to repay that debt, but only if you are acting in good faith.  Using your credit cards at a time that you know you cannot afford to repay the debt is considered to be an act of fraud and violates the good faith requirements of bankruptcy.
8)  Don’t let bankruptcy defeat you
By the time clients make it to my office they are often years into financial crisis.  They have fought tirelessly to repay their debt and they often feel that bankruptcy means defeat.  Defeat in their battle to get ahead.  Defeat in their battle to repay those they owe.  Defeat in life.  That is not the case.  Bankruptcy is not an end but a beginning.  Henry Ford, Walt Disney, Thomas Jefferson and Abraham Lincoln all filed bankruptcy prior to their success.  They didn’t let the need for bankruptcy end their promising futures, but rather used the fresh start offered by bankruptcy to push forward with the life they had always dreamed of.  Don’t ever let past debts ruin your future.  Bankruptcy is not a defeat, bankruptcy is a new beginning.