Lawyers who have been in the Bankruptcy field for any length of time have come across people who either want to try to hide assets in their Bankruptcy case, or who have been caught doing so. We occasionally are asked by potential clients how to shield or hide assets from the Trustee or creditors (a sure sign to invite the person to see another lawyer). If there is a clear cut principle in Bankruptcy, it is this – be completely honest in your Bankruptcy Schedules and your case, and do not try to hide property or other assets. In any given month in Georgia, Trustees will discover real property transferred to a friend or relative, undisclosed bank accounts or other property, undisclosed lawsuits or causes of action that the debtor intends on pursuing after the case is over, or other assets the debtor failed to list. As discussed in this post, Trustees and creditors have ways of finding these assets. When they do find them, the consequences are usually severe.
When Trustees (or sometimes creditors) find out the debtor has tried to hide assets, the Trustee or U.S. Trustee will file an adversary proceeding to deny or revoke the discharge under Section 727 of the Bankruptcy Code. If the discharge is denied or revoked, the existing debts will not be discharged in the current case or any future cases. In addition, the Trustee or U.S. Trustee will then refer the case to the United States Attorney’s Office for criminal investigation. Bankruptcy fraud is punishable by fine and/or imprisonment for 5 years pursuant to 18 U.S. §152 and 18 U.S. §157 for each count. Thus, if a debtor fails to disclose a personal injury case, he may be charged with fraudulently concealing the asset and signing false schedules, which could lead to 10 years in federal prison. The consequences of trying to intentionally hide assets in a Bankruptcy case are simply not worth it.
It is important to clarify one point. This discussion is about intentionally trying to hide assets in a Bankruptcy case. It is not about a simple oversight that can be corrected with an amendment. It is not even about the debtor who transferred property out of their name before the case is filed, but discloses the transfer in the schedules. People do not file for Bankruptcy because things have gone well for them – they file to get a “fresh start.” For the “honest but unfortunate” person in Bankruptcy, even past transgressions can be forgiven in Bankruptcy as long as the person comes to Bankruptcy Court with an honest attitude. If you have transferred property to friends or family within the last several years, it is extremely important that you discuss with your Bankruptcy lawyer.