Bankruptcy trustees are looking for red flags that may indicate dishonesty regarding assets and income. Hidden assets, property that is not exempt but categorized as such, and missing information in the person’s financial record are some of these red flags.
“It is stated that trustees anticipate problems with bankruptcy filings. The debtor is the most affected by this, as it delays the bankruptcy proceeding.
Problems such as inaccurate and incomplete bankruptcy plans or schedules don’t cause any issues for the trustee because the parties can amend their disclosures. The real problem is people who need financial assistance and have filed for bankruptcy can be denied it until their plans and schedules are accurate.
People need to work closely with an attorney in bankruptcy. They should make sure all disclosures made are accurate.
It is not surprising that mistakes and inaccuracies occur when filling out the 23 federal forms and many state forms required to file bankruptcy. Sometimes, omissions can be deliberate.”
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A Hidden Assets
Hidden assets are just what they sound like property or accounts worth more than the amount indicated on documents.
Your schedules may reveal hidden assets.
- Missing financial records
- Closed accounts in bank or investments
- The assets listed are not valued at their true value
- Assets that are not listed can have debt or expenses.
- Recent Property Transfers
- There’s no insurance claim or police report, but the property is reported stolen.
- Payment or paperwork to open a safe deposit box
- You have a property that “belongs” to a friend
- No obvious source of income
- Insurance claims that have not been paid
A Property Issues
The trustee will want to ensure that the exempted property is necessary for either living or working.
What the trustee looks for:
- Actual value of property listed
- What equipment, tools, vehicles, etc. What tools, equipment, vehicles etc.
- If only one spouse files bankruptcy, the property of that spouse will be exempt.
- Recent movements between states
Chapter 13 Bankruptcy Issues
Chapter 13 bankruptcy has its own issues. The person filing must be able to pay the plan and their debts cannot exceed a certain limit.
A Chapter 13 trustee looks at:
- Schedules of income not included
- Income of spouse (which is included in the income of the person filing).
- Over-limit debt
- Transfer of assets before filing
What Happens If a Bankruptcy Trustees Suspects Fraud?
A person can be charged with bankruptcy fraud if they deliberately hide assets, and incomes or misrepresent their finances. This can have serious consequences. A trustee’s role includes looking for fraud.
Even though some deliberate omissions do not rise to the level of fraud, they can still lead to a case being dismissed. If the trustee finds out that there was a previous bankruptcy discharge that wasn’t disclosed or the debtor has too much income, they can object to the discharge of the debts. These are not frauds, but rather the result of not accurately filling out documents or not meeting the criteria for a discharge.
The trustee may refer the case to the U.S. attorney, FBI, or other law enforcement agency if the trustee determines that the person has knowingly concealed income or assets, lied on oath, bribed or embezzled, lied in documents, or made a false claim.
The trustee may use several investigative tools to reach that point, including a meeting of creditors (officially a 341 Hearing) and an adversary proceeding. This is a lawsuit filed by the trustee when fraud is suspected.
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Meeting of Creditors
The meeting of creditors actually took place between the bankruptcy trustee, and the person filing for bankruptcy. The creditors may be present, but they are not usually. The meeting ensures that all forms are accurate and that all assets, incomes, and debts are accounted for.
The trustee will review the documents with the debtor and discuss the planned payments. Both parties must answer questions under oath. The debtor must verify their name, address, Social Security Number, and current employment information, swear that they have reviewed and signed all documents, and confirm the accuracy of the information. The debtor will be asked to confirm if they have any errors or omissions.
Questions that the trustee may ask, but there are many others:
- Do you know all your assets?
- Do you have all your creditors listed?
- You have filed bankruptcy before?
- Do you have any amendments to your tax return?
- Are you current with your payments? Are you up to date with your payments?
- Own or have an interest in real estate
- Do you have any property transfers made in the last year?
- You may be able to claim a large payment if you have made it in the last year.
- Do you own property?
- Do you want to make a complaint against a person or if a business?
- You are the plaintiff of a lawsuit.
- Do you have a right to the proceeds of a life insurance policy, an inheritance, or a tax refund, or did you finalize your divorce, or is your separation pending?
Adversary Proceedings
Fraud is not limited to the person who files bankruptcy. The investigation of a bankruptcy trustee may reveal fraud committed by a creditor. A trustee can file an adversary proceeding in either case. Each year, people file nearly 16,000 adversary proceedings in bankruptcy cases across the U.S. The suit may address a specific issue, such as asking the bankruptcy court to reverse a property transaction or return property that a creditor wrongfully took. The suit can result in a recommendation to dismiss the bankruptcy or hand the case over to law enforcement.
Other Powers of the Bankruptcy Trustees
There are other ways that bankruptcy trustees may investigate a case and lead to a court action, including:
- Rule 2004, Examination: In a version extended of the meeting with creditors, a trustee who suspects fraudulent behavior can ask any questions about finances or financial behavior that they believe may be relevant. The trustee may also request documents to determine if there has been fraud.
- Inspect property: A trustee can make an inventory of all the items in the debtor’s house and business. This includes any storage units or safe deposit boxes.
- Power to subpoena: The trustee has the power to subpoena witnesses to provide testimony about a debtor’s financial condition.
Talk to a Credit Counselor before Filing Bankruptcy!
Before filing for bankruptcy, anyone who intends to do so must take a course in credit counseling. The course should be taken no more than 180 days before the filing date. The bankruptcy court will not accept your filing until you produce a certificate proving you have taken the course.
Credit counseling before bankruptcy ensures that you have exhausted all options for paying down debt before filing for bankruptcy.
The bankruptcy is the only way to get rid of debt. Bankruptcy is the only way to eliminate debt that you cannot handle. It stays on your report for seven to ten years, damages your credit score, and makes it difficult to obtain credit.
If you’re overwhelmed with debt, talking to a counselor from a nonprofit agency can help you get things in perspective. The counselor can help you find other options that will improve your credit score rather than harm it.
Credit counselors will help you review your finances and create a budget. They’ll also go over your debt relief options, and help you decide which one is right for you. Before bankruptcy, you can choose from a debt management plan, debt settlement, nonprofit settlement, or debt consolidation loans. Some of these options will hurt your credit but none will be as damaging as bankruptcy.
A debt management program will improve your credit score shortly after you start and can eliminate all debts in 3 to 5 years.
Law requires nonprofit credit counselors to act in the best interests of their clients. You may not need to see bankruptcy trustees again after meeting with a credit counseling agency.
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