The Honest but Unfortunate Debtor

“The … purpose of the Bankruptcy Code is to grant a fresh start to the honest … debtor.” This is a quote from the United States Supreme Court, and is the underlying foundation of the bankruptcy system in the United States. Part and parcel of this concept is the necessity to be open and forthright, honest, with your bankruptcy attorney.

Many people are tempted to be less than truthful with their attorneys in the first instance because they are under the impression that they will have to give up all of their property if they file for bankruptcy. This is simply not true. In a vast majority of situations, debtors in bankruptcy will not lose anything they own by filing for bankruptcy. Congress has decided that everyone is entitled to keep items that are deemed to be necessary for life. There are even a few other items that may be worth a lot of money but fall under exemption protection nonetheless – i.e., retirement accounts (401k, IRA, pension, etc.), and a homestead, just to name a few. However, because people come into bankruptcy with the belief property might be taken, they assume it is better not to disclose a transaction or piece of property.

This could not be further from the truth. The name of the game in bankruptcy is: Disclose, Disclose, Disclose. A bankruptcy attorney can help protect assets by properly exempting them so long as you actually disclose their existence. However, if you fail to disclose, and it ultimately becomes an issue in your bankruptcy, not only will you potentially lose that property, but it is also possible that your case will be dismissed and you might face criminal charges for perjury or fraud. Moreover, the Bankruptcy Trustee may just decide not to seize certain non-exempt assets. In that case, you may actually get them back. BUT, you only get things back if you disclose them to begin with. Save yourself the trouble and provide your bankruptcy with full disclosure up front.

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