Honesty in Bankruptcy is Best Policy

Several courts have stated that the bankruptcy laws are meant to give an honest debtor a fresh start, but not a head start. It is important to understand that the bankruptcy laws in this country are very forgiving, but these laws require the debtor to make reasonable efforts to repay creditors. The debtor is obligated to disclose all income and assets to the bankruptcy court. From these disclosures the bankruptcy trustee, creditors, and the court are able to determine what, if anything, the debtor can afford to repay.

The debtor has a great responsibility to truthfully disclose income and assets to the best of his or her ability. The federal bankruptcy laws will relieve the honest debtor from the stress of overwhelming debt. However, the dishonest debtor can face serious consequences.

One consequence of failing to disclose income or assets is that the debtor may be denied a discharge. Section 727 of the Bankruptcy Code is designed to protect the integrity of the process and permits the court to 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. The court may deny the dishonest or uncooperative debtor a discharge under Section 727 and the debtor will remain liable for all debts. To make matters worse, 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.

Another more serious consequence for the dishonest debtor is the prospect of being charged with bankruptcy fraud. The Federal Bureau of Investigation ordinarily investigates allegations of bankruptcy fraud, but other federal agencies may become involved including the Internal Revenue Service Criminal Investigation’s Bankruptcy Fraud Program. Most bankruptcy fraud is first discovered by the bankruptcy trustee, and is often the result of whistle blowing from neighbors, creditors, or ex-souses. The Department of Justice Trustee Program encourages individuals to report bankruptcy fraud.

In bankruptcy, honesty is the best policy. For an individual who needs relief from overwhelming debt, bankruptcy is a tremendous tool that gives real results. The promise of bankruptcy is a fresh start, but not a head start. Debtors who are dishonest during the bankruptcy process can lose the benefits of a bankruptcy discharge, and may be criminally charged with one or more federal crimes. If you need help with your debt problem, speak honestly and frankly with an experienced attorney and learn how the powerful federal bankruptcy laws can help you.