Do I Have to List All Property?

Do I Have to List All Property?

I received a question about a potential inheritance. This person knew that a Trustee could pull in property received after a bankruptcy, but asked how the Trustee would know. I thought I would present this post since I get asked similar questions all the time about why we have to list some thing in the bankruptcy paperwork.

I am happy to answer your questions and work with you. Due to the nature of your question, I will be a little lengthy in response.

Under bankruptcy law, individuals are required by law to disclose all his estate, including potential money owed to him. Accordingly, you would list the potential inheritance in your bankruptcy schedules. If a person is upright and forthright, then that information will be disclosed to the Court.

If a person does not disclose that information then it may be found out by the Trustee by the initial searches. DMV, title reports, lawsuit searches, etc may turn up other property. Despite these, the most typical way a Trustee finds out about undisclosed property is by someone who provides a tip to the Trustee. It may be an anonymous person who knows you are filing or have filed bankruptcy, it may be an attorney dealing with another legal matter and stumbles upon it (like a Trustee or Executor in a probate estate), or it may be the IRS/Idaho Tax Commission (estates often report how much is paid out or given to recipients). Be aware that a Trustee can review the taxes of individuals the year after filing bankruptcy.

It is not unheard of for a Trustee to reopen a bankruptcy estate and pull in property owed to the Debtor at the time of filing. Especially large tax returns, inheritances, or lottery winnings are the more common examples of this scenario. However, if this information comes to a Trustee even years down the road, the bankruptcy estate could be opened again and the assets dealt with accordingly.

Be aware that bankruptcy has attached to it certain federal crimes for willfully failing to disclose assets. If it comes out, even years later, that a person knew of assets that stood to be theirs, heavy fines and almost certain prison time accompany the situation. Therefore, if there is any question, I would risk listing the potential inheritance on your bankruptcy schedules and never have to worry about the issue in the future.

Bankruptcy also has some interesting provisions regarding attorneys. If an attorney also knew of the assets and failed to list them on the paperwork, then that attorney can be subjected to the same fines and prison time. A rare area where an attorney does not have protection for working on behalf of their client.

My recommendation? If possible, I would wait until after receiving the potential inheritance to file bankruptcy. Also, be very careful how you spend or set aside this inheritance. You want to do it in a way that it will be protected and not recouped by the Trustee. You cannot give more than $200 to a family member in a year, you cannot pay creditors more than $600 in the 90 days before bankruptcy, and a host of other provisions. If you have to file bankruptcy before you receive the inheritance then I would list the potential inheritance. I would not risk the issues of trying to hide it. You might get away with it, but if you get caught you might not only risk fines and prison, but you may get yourself barred from ever being able to file bankruptcy and ever getting a discharge (forgiveness of your debts). I would rather risk an inheritance than my name, family, and whole potential economic future.

I hope that answers your question. Probably more of a sledgehammer to kill a fly, but that is my take. Let me know if you have other questions.