Bankruptcy

It?s Not Nice To Fool Your Bankruptcy Attorney!

By Kevin Gipson, New Orleans Bankruptcy Attorney

Back in the 1970’s there was a margarine sold under the brand name Chiffon.  (Or so I’ve been told.  The ’70’s were a little before my time).

According to the commercials, the margarine tasted so much like butter that it fooled Mother Nature.  (Ok, I was around for the ’70’s, but I just don’t remember that much about them!  Let’s just leave it at that!)

Anyway, the tag line of the commercial was:  “It’s Not Nice To Fool Mother Nature”, and to prove this point, mother nature would raise her arms toward the sky, the sky darkened and it became windy, and you knew bad things were to come.

So what does this have with you and your bankruptcy attorney?

Everything!

It is also not nice to fool your bankruptcy attorney!

If you fail to tell your bankruptcy attorney about all of your assets and debts, you expose yourself to all sorts of bad things happening.

As an example, I recently had a client that came to see me about filing a Chapter 7 bankruptcy.

During the interview process the client was asked about all assets that the client had.  In any bankruptcy you must list all of your assets whether they are exempt from seizure or not.

One of the assets that cannot be exempted in Louisiana, where I practice, are lawsuits.   If you have a lawsuit in Louisiana and if you recover money,  under most circumstances that money must be handed over to the trustee to pay the debtor’s unsecured creditors.

In this case, the client denied having any lawsuits, however, after filing the bankruptcy, the client came to my office and brought me a copy of a lawsuit that had been filed on the client’s behalf and also advised me that there was a claim for an automobile accident and that an attorney was close to settling that case as well.

The client’s schedule’s had to be amended to list these two previously undisclosed lawsuits.

So how was this a bad thing for the client/debtor?

First, the following things did happen:

1. The debtor’s Bankruptcy Schedules had to be amended;
2. The debtor’s Statment of Financial Affairs had to be amended; and,
3. The debtor incurred additional legal fees and costs to make the necessary amendments.

What other bad things could have , but didn’t happen:

1. At a minimum, the bankruptcy discharge could have been delayed;
2. The Trustee in the bankruptcy or the U.S. Trustee’s Office could have considered the failure to list the lawsuits as an attempt to fraudulently fail to disclose assets that were available to pay the debtor’s unsecured creditors;
3. The bankruptcy could have been dismissed;
4. The debtor could have been fined; and,
5. The debtor could have gone to jail.

So that is the asset side of the problem.

But why is it a bad thing to not list a creditor?

Well, frankly, in most cases, it probably will not matter.   Generally speaking, in most Chapter 7 bankruptcy cases there are no assets for the unsecured creditors, so the failure to list an unsecured creditor will not change the fact that the unlisted debt is still discharged.

But what about in a case like this one, where there were two lawsuits that had potential assets?

The answer is that in a Chapter 7 bankruptcy where assets are available, the failure to list a creditor means that the creditor has had his rights to file a claim and share in the assets prejudiced.   Since the crediter was not able to file its claim, its rights as a creditor to collect from the debtor were not discharged.

That is a bad thing.  The debtor remains on the hook for the undisclosed debt simply because the debtor did not bother to list the debt.

In the same case, the client/debtor recently returned to my office with letters from attorneys for two of the debtor’s creditors.   These were creditors that were not listed in debtor’s original filing. 

Fortunately, in this particular case, the case had not yet been closed, and while settlement funds were expected, they had not been received or disbursed.

As a result we were still able to go back and amend the debtor’s schedules to include the two additional creditors in time  to give those creditors notice and the opportunity to file their claims.

But, once again, this affected the client since there were additional costs and fees to amend the schedules.

Take the time to answer completely and honestly the questions asked by you attorney.  It saves you time and money, and reduces that chance that bad things will happen to your discharge in bankruptcy.

Full post as published by Bankruptcy Law Network on March 19, 2010 (boomark / email).