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Dishonesty During Bankruptcy Spells Big Trouble

February 2, 2011

The federal bankruptcy system is built on trust. The Supreme Court of the United States has consistently held that bankruptcy provides a fresh start for the honest, but unfortunate debtor. However, a dishonest debtor can face significant obstacles and make his financial and legal situation worse.

The bankruptcy laws are meant to give an honest debtor a fresh start, but not a head start. The debtor is expected to make a reasonable and good faith effort to repay his creditors. The debtor must provide honest and accurate information regarding his income, expenses, assets, and debts to the bankruptcy court. The information is reviewed by creditors and the bankruptcy trustee and is a snapshot of the debtor’s financial status on the day the bankruptcy was filed.

The law does not expect bankruptcy debtors to go without food, or clothing, or to stop paying the family car payment in order to pay a credit card bill. On the other hand, the debtor is expected to pay if the money can be reasonably had from extra monthly income or by selling an unnecessary item of property.

Even with the large benefit that bankruptcy can provide, some debtors still try to “game” the system. Failing to honestly and accurately disclose income or assets can result in a denial of bankruptcy discharge. In some cases the bankruptcy court may dismiss the debtor’s case for dishonest acts like lying on the bankruptcy schedules, hiding assets, failing to maintain financial records, refusing to turn over records, and refusing to cooperate with the trustee. If the debtor’s case is dismissed or a discharge is denied, the debtor will remain liable for all debts.

If a discharge is denied, any assets turned over during the case will still be administered by the bankruptcy trustee and the debtor may lose non-exempt property to creditors.

Perhaps the most serious consequence to the dishonest debtor is a federal criminal charge for bankruptcy fraud. Dishonest acts during bankruptcy may be referred to the Federal Bureau of Investigation for investigation. Other federal agencies may become involved like the Internal Revenue Service Criminal Investigation’s Bankruptcy Fraud Program. The Department of Justice Trustee Program maintains a website and toll-free number for the general public to report suspected bankruptcy fraud.

The old saying goes, “pigs get fat, hogs get slaughtered.” Don’t be hoggish during bankruptcy and report your financial information honestly and accurately. An experienced bankruptcy attorney can evaluate your financial situation and advise you in the most beneficial and legal way to protect your family’s income and assets during bankruptcy. Call today and discover how the powerful federal bankruptcy laws can help you.

Fears & Nachawati Bankruptcy Law Offices

4925 Greenville Ave Suite 715, Dallas, TX 75206 (214) 890-0711
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