Liar, Liar, Pants On Fire!

Failure to list assets may make you a liar, liar, pants on fire!

What is an asset and better still, why do I need to tell anyone about it in bankruptcy?  Let’s start with the definition of an asset.  Merriam-Webster defines an asset as something owned by a person.  Merriam-Webster has provided a simple but most excellent way to describe the term “asset”.

To determine if something is an asset, ask yourself, “Do I own it?”  If the answer is yes, you MUST list “it”.  Please allow me to illustrate.  A dog lives with you, do you list it?  If you feed the dog and care for the dog, you probably own the dog.  So list it.  If the dog is not an AKC registered dog or does not qualify as a show dog, then the value is $0.  I know, I know, the dog is part of the family and priceless, but no one else is going to pay a significant amount of money for the dog.  Therefore, the trustee will not want the dog, but you have complied with your duty to list the dog as an asset.

What about the right to sue someone? If you are injured while working, you may be able to sue the employer in a worker’s compensation suit.  If you are in an auto accident or injured in some other way, you may be able to file a personal injury suit.  If you have the right to sue someone, you have an asset in the form of a lawsuit.

You may think, does the “right to sue” qualify as ownership because you HAVE NOT filed the suit or even spoken with an attorney.  Ask yourself, who may bring the suit?  If YOU are the one who has the right to file the suit then you “own” the right to sue.  Ownership = Asset = Duty to list on your bankruptcy schedules.

You may generalize the listing of some assets such as clothes, small appliances, three televisions, etc…

Other assets such as a vehicle, home or lawsuit will need specifics in the description.

1. Lawsuit
   • What type of lawsuit is it?
   • Who is the attorney handling your case?
   • What stage is the lawsuit in?
   • Remember, even if you have not met with an attorney and THINK you may have a suit, you must list it.
2. Home
   • What type of home? List bedrooms, baths, split-level, ranch, etc..
   • What year is the home?
   • What value does the county list on your real property statement?  If you do not pay real property tax, drive your neighborhood and see what homes are selling for.
   • What would you pay for your home?  If it is less than what the county lists or the homes surrounding you, state specifically why the value should be less.
3. Vehicle
   • What is the make?
   • What is the model?
   • How many miles are on the vehicle?
   • Do you smoke in the vehicle or haul animals or haul work supplies?
   • How many accidents has the vehicle been in?
   • Does the vehicle need major repairs?  Do you have estimates for those repairs?

Now let us discuss why you need to list the asset. You must list it BECAUSE IT IS THE LAW. That answer sounds like the “because I told you so” response from your parents. I never liked either answer because it leaves you with the unending thought of WHY?

So let’s discuss the why.  You are asking to walk away from your debt and in exchange for this opportunity, there are certain steps you must take.  §521 of the Bankruptcy Code requires you to list ALL your assets.  In fact, this section is titled: Debtor’s Duties.

Hmmm, okay, you say I am required to list my asset because the Code says so, but it still does not tell me why!  Why? It is a fairness test.  Stay with me for a moment.  The trustee must determine if you have any assets that are worth anything above and beyond the protection or exemption limit.  If you do, then the asset may be sold to pay towards your debt. In the alternative, you may be asked to pay the trustee the non-exempt equity.  This action allows the trustee to use the funds to pay towards your debt while allowing you to keep the asset.

I ask my clients to look at things from the creditor’s point of view to truly understand this point.

For instance, your employer says he cannot pay you this week because he needed the money to go on vacation or pay his child’s tuition or make a car payment.  How would you feel?  Is it fair the employer received the benefit of your work, but you did not get paid?  NO, it is not fair and in fact, this behavior would be considered illegal.  The same goes if you hide assets from the court and your creditors.

So if you have a personal injury suit that could potentially pay off your debt, would it be fair for you to keep that a secret and not pay your creditors?  The creditor in good faith gave the line of credit. You enjoyed the benefit of using the credit cards or payday loans or lines of credit.  So in the essence of fairness, it is not fair for you to keep an asset that would pay off a portion or even the entire amount of your debt.

In a recent case before the 8th Circuit Bankruptcy Appellate Panel, Judge Federman uses a quote by Judge Schermer to illustrate why honesty is required  to give the bankruptcy system credibility and make it function properly and smoothly.  Home Service Oil Company v. Cecil (In re Cecil), No. 15-6026 (BAP 8th Cir. Dec. 28, 2015)  “Bankruptcy provides debtors with a great benefit: the discharge of debts. The price a debtor must pay for that benefit is honesty and candor. If a debtor does not provide an honest and accurate accounting of assets to the court and creditors, the debtor should not receive a discharge.” In re Bauder, 333 B.R. at 834 (Schermer, J. dissenting).

So what?  No way, no how am I going to list my assets. What are you going to do to me?  That is a great question!  The answer is your discharge could be denied pursuant to §727(a)(4)(A) for lying.  You see, when you file the documentation with the court you will sign this statement: I have examined this petition, and I declare under penalty of perjury that the information provided is true and correct. … I request relief in accordance with the chapter of title 11, United States Code, specified in this petition. I understand making a false statement, concealing property, or obtaining money or property by fraud in connection with a bankruptcy case can result in fines up to $250,000, or imprisonment for up to 20 years, or both. 18 U.S.C. §§ 152, 1341, 1519, and 3571. You will also sign this statement: Under penalty of perjury, I declare that I have read the summary and schedules filed with this declaration and that they are true and correct.  

So you see, if you wish to seek a discharge of your debt, you must play by the rules and the rules state you list all your assets!  End of story.

Knowledge is power.  The more knowledge you have about disclosing your assets, the more power you will have to avoid being a liar, liar, pants on fire!

Image by Rachel Lynn Foley.