It isn’t so. Really! But don’t believe me. Believe the government auditors who were looking for fraud and didn’t find anything to write home about. Or write anyone about, for that matter.
You’ve heard it before: “Oh, I know someone who filed for bankruptcy, and they kept everything, and they had a lot.” The implication here is that the bankruptcy filer did not let the Court know about assets that they had, because if they did, the Court would take these assets away.
To investigate this, the United States Trustee’s Office, who oversees the bankruptcy system, took part in random audits to find the “ah ha!” moments that were expected. “What house in the Caymans? Oh, THAT house,” is what we expected that the US Trustee’s Office would be reporting, along with the inevitable jail sentence for the bankrupt for hiding assets. But it didn’t happen.
In fact, the US Trustee has halted these random audits indefinitely due to budgetary constraints. But that doesn’t mean that they found anything before the budget crisis hit. In fact, though they found “material misstatements” in 25% of the audited cases, this did not result in a surge of denied discharges (the goal of bankruptcy is to get a discharge). It apparently did not result in a major increase in prosecutions either.
In a post from the Bankruptcy Law Network, Cathy Moran wrote that “The audit results so far support what debtor’s attorneys have said all along: debtors are overwhelmingly honest on their schedules (the papers that they have to file with the Bankruptcy Court).” This has certainly been our experience at Steidl and Steinberg.
But it is also important that the attorneys and staff at the law offices emphasize that honesty is not only the best policy, it is the only acceptable policy, and that is how we conduct our business.
That doesn’t mean that there cannot be any planning involved before bankruptcy papers are filed to help people keep their assets. In fact, the Bankruptcy Code itself talks about what people can keep, and we’ll help you do that. But it does mean that one must be honest with their attorney so that one can get the maximum benefit out of a difficult situation.
Fraud, no! Plan, Yes!