Full and Complete Disclosure Required Under New Bankruptcy Law
Be Prepared to Disclosure Full Picture
of Your Assets and Income
by Jonathan Ginsberg
Besides tightening the eligibility requirements for Chapter 7 and Chapter 13, the 2005 bankruptcy law also puts a greater burden of disclosure on bankruptcy filers. Unlike the pre-October 17, 2005 laws, the new laws do not assume that bankruptcy debtors will always be forthcoming about what they own and what they earn.
While it has been our experience that most bankruptcy debtors are honest, hardworking men and women who have ended up needing bankruptcy because of unexpected life changes, bankruptcy filers now should be prepared to provide backup documentation for most of the statements contained in their petitions.
Thus, if it appears that bankruptcy may be in your future, you should make a concerted effort to save your pay stubs, your canceled checks and other proof of expenditures. Your need for documentation about monthly budget expenses is especially important if you have special expense requirements (such as high out of pocket medical costs or special educational needs for your children). Without this documentation, the bankruptcy judge will only allow you to claim expense amounts deemed reasonable by the IRS - the same numbers used by the IRS when working out payment plans for tax cheats. As you might imagine, these IRS allocations are not very generous.
Not only will bankruptcy trustees and judges insist on documentation of claimed expenses, but they may audit your case in a random case audit. This audit could take any form, and might include surveillance or personal interviews.
Because accuracy is demanded by the new law, you must be completely truthful with your lawyer when discussing your financial situation. You cannot and should not assume that “no one will ever know.” Similarly, do not ask your lawyer to overlook or misrepresent information in your petition. The new law makes lawyers personally responsible for the accuracy and truthfulness of bankruptcy papers that are filed in court, and no hardworking lawyer at this firm or any other is going to risk sanction, fines or his law license for one client.
The new law is designed to add an element of pain to the bankruptcy process. In years past, you would have been unlikely to lose any property when you filed for bankruptcy. Today, that is not necessarily the case. Bankruptcy filers in 2008 and beyond can still get bankruptcy relief, but they should expect that the road to bankruptcy relief will be much more difficult.
Jonathan Ginsberg is a lawyer and Internet marketing consultant based in Atlanta, Georgia.
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