Since bankruptcy law requires you to tell the bankruptcy court about everything you own, hiding your property is never a good idea. If the court or trustee discovers that you hid something, you could face serious consequences, including not receiving a discharge. You could even face criminal charges.
Why Do Some People Hide Property in Bankruptcy?
The idea of getting rid of bills while keeping things such as savings accounts, recreational equipment, or a vacation home appeals to some people. While it may sound nice, it is not how bankruptcy works. Filing Chapter 7 bankruptcy allows you to keep enough property to continue working and to maintain your home. How much, and what, you can keep varies by state. However, usually you cannot keep more than household belongings, certain retirement accounts, and a modest car. Depending on how much equity you have in your home, you may also be able to keep your house. You must turn over your remaining property to the trustee who in turn sells it and distributes the money to your creditors. (Learn more about how Chapter 7 bankruptcy works.)
You Must Disclose Everything to the Bankruptcy Court
When you file for bankruptcy, you must disclose all of your financial information in your bankruptcy petition. This includes not only listing all of your debts, but all of your property as well. By signing the bankruptcy petition, you declare under penalty of perjury that the information is true and correct to the best of your knowledge.
Ways People Try to Hide Assets
Despite bankruptcy’s clear requirement that filers disclose all property and assets to the court, some people try to evade the system by hiding their property. People hide their property in different ways depending upon the type of property it is. For example, some people transfer the title of cars or real estate to a family member or friend, stuff cash between mattresses, or move expensive sporting equipment to a storage facility. Others don’t physically hide property, but simply do not list everything they own on the proper bankruptcy schedules even though they know they are supposed to do so.
Will the Trustee Find Out?
In most cases, yes. Experienced trustees are good at picking up on red flags in your bankruptcy petition or at the meeting of creditors. And the bankruptcy code gives bankruptcy trustees power to further investigate.
Among other things, a trustee who suspects you are hiding property may
- inspect your home
- inspect your place of work if you own your own business
- check public records, and
- review your financial documents, such as bank records and paycheck stubs, looking for deposits into undisclosed accounts.
And sometimes a third party will tip the trustee off about your attempts to hide property. For example, a disgruntled spouse might come to the creditor meeting and tell the trustee that you failed to list your expensive Rolex watch or that you have a side business that you did not disclose.
What Happens if You Hide Assets?
If you hide property, and the trustee finds out, a number of things can happen.
You Do Not Receive a Bankruptcy Discharge
A trustee can object to the discharge of your debts if the trustee shows you committed a fraudulent act, such as lying on your bankruptcy schedules or hiding property from the trustee.
You Lose the Property
Even if you don’t receive a discharge you still remain in bankruptcy. The trustee sells the property you attempted to hide along with other assets you could not exempt, keeps a percentage of the money, and gives the rest to your creditors. You are responsible for paying any amount still owed to your creditors.
You Cannot Discharge Certain Debts, Ever
If you still have debts left over after the trustee sells your property and pays your creditors, you cannot discharge any of these debts in a future bankruptcy.
You May Face Criminal Charges
You can also be criminally charged with making a false statement on your bankruptcy petition. This is because when you sign your bankruptcy, you declare under penalty of perjury that your petition is true and accurate. If you are charged with making a false statement, you may be fined up to $500,000, put in prison for up to five years, or both.
If You Forget To List Property
People forget to list property sometimes. The following are types of commonly forgotten property:
- federal and state tax refunds
- gambling or lottery winnings
- potential lawsuits in which you have a claim against someone for money
- lawsuits you already filed against someone asking for money, and
- bank accounts you own with someone else.
In bankruptcy, you should not intentionally do anything to hinder, delay or defraud your creditors. This is why you should fix any mistake you find on your bankruptcy petition right away, including when you forget to list property. You can do so by amending your petition and giving the trustee a copy. When you quickly fix the mistake yourself, the court is more likely to believe the mistake was innocent. On the other hand, if the trustee catches the mistake, the court may believe your intent was not so good. (To learn what to do if you forget to list property, see What Should I Do if I Find a Mistake on My Bankruptcy Petition.)