I don't think very many of my clients set out to be outright dishonest with me. However, sometimes I do believe they give less than the whole story while we are preparing their case. They may be nervous that a certain fact will disqualify them from filing. They may believe something isn't very relevant, and that they would be wasting my time. Or, they may just be embarrassed. Whatever the reason, it is best to be completely honest with your attorney throughout the bankruptcy process.
When my clients ask me what can go wrong in a bankruptcy, my answer is always, "nothing... as long as you tell the truth." This may sound simple, but it is true. As long as you disclose everything about your assets, debts, and recent financial situation, your attorney can act accordingly, and the Court will have no problems with your case. It is when filers omit facts, or outright lie, that problems arise.
All bankruptcy petitions are filed under Federal law, in the Federal Court system, under the penalty of perjury. This means that lying could literally lead to jail time. The Trustee may investigate your finances in the course of processing your case, or your case can be audited by the Court. Either way, material dishonesty can have huge penalties, not the least of which would be having your case dismissed. This doesn't mean that if you forget about a $50 savings bond sitting in a desk at home that you are going to jail. But, if you leave out the fact that you have a vacation home, or a second income, big problems can result.
You must disclose all of your assets to the Court when filing any bankruptcy. "Asset" has a very broad definition under bankruptcy. It is basically anything tangible or intangible of any value that you own. In most cases, your property can be "exempted" and protected from your creditors. But, you must disclose ALL of your property. You must also disclose ALL household income, and once again, the definition of income is broad. Without going into too much detail about what is an asset or what is income, it is only important right now to say that you should not omit anything.
When you do not disclose all of your property, income, and recent financial transactions to the Court, the assumption will be that you are lying about other things, and this can lead to major headaches. Beyond the penalties for perjury, your case can be dismissed with prejudice, which means you will not be able to file bankruptcy on your debts in the future. If you are honest in all the details, there won't be any problems.
When reviewing your bankruptcy petition, just be honest and everything will take care of itself. An experienced bankruptcy attorney will ask all the relevant questions, and if you provide the answers honestly and thoroughly, there will not be any issues with your case.
What are common situations that come up? My clients will sometimes not want to disclose income paid under the table, or property owned with other family members (thinking it will affect their property rights). Sometimes my clients will be embarrassed to disclose the cause of their debts is gambling or some other addiction. Clients may also tell less than the full truth about recent financial transactions, such as money paid to family or property transferred to family.
Once again, the reasons are almost never malicious. But, little omissions can lead to big problems later. Answer your attorneys questions to the best of your ability, and he or she can file your petition accordingly. In some cases, the fact that a client was omitting has been much less important than they think.
If you have any bankruptcy questions, please contact us!