With the turmoil with the economy, many consumers are filing for bankruptcy. Many are filing Chapter 7 (commonly referred to as a fresh start bankruptcy), many others are under a wage earner plan also known as Chapter 13 Bankruptcy.
Bankruptcy can alleviate many financial problems that a consumer may be facing. It may discharge judgments, stop garnishment, eliminate credit card debt, stop collections of medical bills, and even discharge some tax liability.
There are certain situations where bankruptcy may go wrong. The bankruptcy code or any bankruptcy filing is based on one important concept: honesty. Just like the Internal Revenue Code, a consumer must disclose to the court all of his or her assets and all of his and her liabilities. A debtor cannot omit or forget to disclose any of his or her assets or any of his or her liability. Consumers sometimes believe that they may be able to file bankruptcy on some debts but not others. That is a misunderstanding.
A consumer, if he or she decides to file, must submit all of his or her financial information to the court. Not fulfilling this requirement may bring a consumer many issues and legal headaches. If a debtor does not disclose an asset to the court, and the bankruptcy trustee finds that asset (i.e. a bank account, a vehicle, lien, settlement, inheritance, a 401K etc), he or she may refer the case to the Department of Justice. The Department of Justice assigned attorney will review the file and will determine if a case is more serious than a simple omission or if there is in fact intent to deceive the court.
What consumers must know is that the Bankruptcy court will look at every petition with some sort of suspicion. They must look to see that the debtor is not hiding or concealing any asset to avoid having the court surrender it to a creditor. The Department of Justice may file an adversary proceeding against the debtor. This adversary proceeding behaves like a normal lawsuit. There are depositions, testimony, interrogatories, and there is a special type of deposition referred to as Rule 2004 Exams. At these exams, the Department of Justice can subpoena or summon the presence of a debtor and ask a lot of questions about the assets and property that was not listed.
The Department of Justice can decide to continue the case or suggest that the case should be dismissed. If the case is dismissed, there are very heavy penalties against the debtor. For example, the debtor cannot seek another discharge, ever. The debtor will be barred from filing bankruptcy forever. If the fraud is serious enough, the Department of Justice may refer the case to the United States attorney for prosecution which carries a penalty of up to five years of imprisonment and up to $250,000 in fines.
It is very important not only to be as honest and forthcoming as possible, but also appear to be as honest and forthcoming as possible. If the perception is that there is something suspicious or fishy, it may give rise to a more in-depth investigation. Consult a bankruptcy attorney in your area and discuss all the possible ratifications that your filing may have.
The bankruptcy schedules may look simple and clean with their respective exemptions; however, there is a lot of implications when a debtor decides to file a petition for bankruptcy by themselves that may or may not end up in the hands of the Department of Justice. The Department will make a claim for charges against the debtor if it believes there is intent to defraud.
If you consider bankruptcy, it is important that you talk to an attorney that practices bankruptcy in your local area. Most of them give a free consultation and they can help you at least determine whether bankruptcy is a good option for you.
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