In every successful bankruptcy, honesty and transparency are key. But it’s not just a good idea, it’s also the law. If you are considering filing for bankruptcy you should understand early on that you must act in good faith and disclose all salient points with both your attorney and the bankruptcy court.
This “duty to disclose” comes at several of the most important parts of the bankruptcy process. Below are three major areas where debtors like you are expected to be open and honest in the bankruptcy “relationship:”
First, pre-bankruptcy asset transfers. Suppose you file for bankruptcy to get rid of some debts, but before doing so you secretly transfer your boat, car and investments to Uncle Jimmy, at least until your bankruptcy is closed. Unfortunately, this is only a “pretend” transfer, and this very activity would likely be considered fraud. Transferring property like this could get the property seized by the Trustee or your case thrown out. Discuss any such transfers with your attorney.
Second, payments made before your bankruptcy. You might have heard the advice that you should avoid repaying loans to family and friends prior to filing bankruptcy. Just like the transfer of assets mentioned above, paying off loans from friends and family can be seen as defrauding a party; you are choosing one “creditor” over another. Payments beyond what’s considered “the essentials” (e.g., mortgage, rent, utilities, food), must be disclosed in your bankruptcy.
Third, prior lawsuits. The means test, which can determine what chapter of bankruptcy you are eligible for, can change if you expect to see a windfall in the near future. If you are currently involved in any lawsuits or are expecting to be a part of a lawsuit from which you might receive some type of financial settlement, like worker’s compensation or a personal injury claim, you have a duty to disclose those facts.
The bankruptcy process can be very intricate. If you are thinking about filing bankruptcy you should consult with a qualified attorney before filing. If you are considering filing for bankruptcy and have questions regarding your eligibility or regarding any other part of the process, please contact me at [email protected] or (248) 246-6536 to schedule a free, initial consultation.