In my experience, when a debtor is caught lying on his/her petition, the first result is that their discharge is revoked. Second, their exemptions are disallowed, which in turn, means that all their formerly exempted property can now be sold, including their house, furniture, and cars. Lastly, the bankruptcy court can request that the United States Attorney’s office open an investigation and even criminally prosecute the debtor. Needless to say, the consequences of lying on the bankruptcy petition are immense, illegal and not advised. While no one likes to have their property liquidated in a bankruptcy, more often than not, it’s a small price to pay for the discharge of all one’s debt. To put it in perspective, lying and getting caught could get all your property sold, leaving you with all your former debt, and even prison time.
The shame of it all is that most debtors that conceal assets or income would have never lost anything if they had simply disclosed it to their attorney. An experienced attorney can counsel their client on whether the property is exposed and possibly pre-bankruptcy planning to avoid property loss.
There are serious consequences to concealing assets in bankruptcy. Many debtors may be tempted to think “I don’t want to lose my stuff in bankruptcy….Maybe, if I don’t list it on my bankruptcy petition, no one will ever know. Maybe I’ll get away with it.”
Maybe … maybe not. This all too common predicament causes debtors much grief. When bankruptcy protection is needed in a chapter 7, the bankruptcy trustee is compelled to investigate and ultimately liquidate any non-exempted equity in property. That last statement needs explaining: “property” means everything you own or have an interest in. “Equity in property” means the net proceeds if you should liquidate. For example: your vehicle may be worth $10,000, but if it has a loan against it for $7,000, the “equity in the property” is $3,000. Lastly, every state has “exemptions”, which allows you to protect certain “equity in property”. In North Carolina, the vehicle exemption is $3500 and thus, in the prior example, the equity in the vehicle ($3000) would be fully protected from the bankruptcy court since it’s less than the exemption ($3500).