One of the worst things that can happen in a bankruptcy case is discovering that an asset was left off your bankruptcy paperwork. Maybe you forgot about an old bank account. Perhaps you didn’t think your tax refund was important. Maybe you owned a vehicle, inherited property, had a pending lawsuit, or had an interest in a business that you never mentioned to your attorney.

Or perhaps you knew about the asset but didn’t think it was something the bankruptcy trustee needed to know about.

Whatever the reason, the question is the same: What happens if you didn’t tell your bankruptcy lawyer about an asset?

First, don’t panic. Making a mistake or forgetting to disclose something does not automatically mean you have committed bankruptcy fraud or that you will lose your bankruptcy discharge. However, it is something that needs to be addressed immediately.

I have practiced bankruptcy law for 35 years, and I can tell you that full disclosure is one of the most important parts of successfully completing a Chapter 7 bankruptcy. There are ways to correct mistakes, but ignoring an omitted asset can turn a relatively simple problem into a very serious one.

Let’s look at what you need to know.

1. You Are Required to Disclose All of Your Assets, Even If You Think They Are Exempt

One of the biggest misconceptions I encounter is that a bankruptcy debtor only needs to disclose assets that the bankruptcy trustee might actually take.

That is absolutely incorrect.

When you file Chapter 7 bankruptcy, you are required to disclose all of your assets and property interests. It does not matter whether you believe the property is exempt, has little value, or is something the trustee would never be interested in.

For example, you need to disclose:

• Bank accounts, including accounts with very small balances.
• Vehicles, boats, motorcycles, ATVs, and recreational equipment.
• Real estate, including partial ownership interests.
• Inherited property or potential inheritances.
• Tax refunds and anticipated tax refunds.
• Pending personal injury lawsuits and other legal claims.
• Business interests, LLCs, and ownership in corporations.
• Timeshares and vacation club interests.
• Cryptocurrency, stocks, bonds, and investment accounts.
• Money owed to you by another person.
• Valuable collections, firearms, jewelry, and other personal property.

Under Section 521 of the Bankruptcy Code, debtors have an obligation to file schedules of assets and liabilities and cooperate with the bankruptcy trustee.

The important distinction is this: You must disclose the asset first. Your bankruptcy attorney then determines whether the asset is protected by an exemption.

You should never make that decision yourself.

2. What If I Simply Forgot to Tell My Bankruptcy Attorney?

This is probably the most common situation.

You meet with your bankruptcy attorney, provide financial information, answer dozens of questions, and eventually sign your bankruptcy paperwork. You might not remember every single thing you own or every financial interest you have.

Perhaps you forgot about an old bank account with $300 in it. Maybe you forgot that you had a small ownership interest in an LLC. Perhaps you didn’t mention that you were expecting a tax refund.

People forget things. It happens.

The important question is whether the omission was an honest mistake or whether you intentionally withheld information because you did not want the trustee to know about the asset.

Those are two very different situations.

An honest mistake does not automatically constitute bankruptcy fraud. However, once you discover that something was omitted, you have an obligation to correct the problem.

Do not assume that because your attorney prepared the paperwork, the responsibility for the omission belongs entirely to your attorney.

You signed the bankruptcy petition and schedules under penalty of perjury. You have an independent obligation to provide complete and accurate information.

3. Can I Just Amend My Bankruptcy Schedules?

Yes. In many situations, an omitted asset can be corrected by filing amended bankruptcy schedules.

The important thing is to be honest and let your Chapter 7 trustee know about the asset.

Sometimes my clients remember an asset they inadvertently omitted from their bankruptcy schedules while they are being questioned by the trustee at their 341 Meeting of Creditors. Other times, the trustee discovers an asset independently and asks the debtor about it during the hearing.

For example, some Chapter 7 trustees access public records, including Michigan Secretary of State vehicle registration records. A trustee may discover that you have a vehicle registered in your name that was never listed in your bankruptcy schedules.

The trustee might ask you something like this:

“Our records show that you have a 2017 Ford Focus registered in your name. Why wasn’t that vehicle disclosed in your bankruptcy schedules?”

Maybe you completely forgot about the vehicle. Perhaps it has been sitting in the back of your garage for five years because the transmission broke, it hasn’t run in years, and you haven’t even thought about it as an asset.

What should you do?

Tell the trustee the truth!

Explain that, yes, you do own the vehicle, but you inadvertently forgot to list it because it has been sitting in the garage and is essentially inoperable. Don’t become defensive, don’t try to explain it away, and certainly don’t deny owning something that you actually own.

Simply acknowledge the omission and tell the trustee that you will have your attorney amend your bankruptcy schedules to disclose the vehicle.

Sometimes the trustee will specifically request that you file amended schedules. Other times, the trustee may simply acknowledge your explanation and tell you that an amendment is not necessary.

The important thing is that you have disclosed the asset and answered the trustee’s question honestly.

Remember, a vehicle that hasn’t run in five years may have very little, if any, value. The trustee may have absolutely no interest in administering it for the benefit of creditors. But that is the trustee’s determination to make, not yours.

My advice is simple: If you discover that you forgot to disclose something, or the trustee brings an undisclosed asset to your attention, be completely honest. An inadvertent omission that is promptly acknowledged and addressed is a very different situation from intentionally concealing property from the bankruptcy trustee.

Federal Bankruptcy Rule 1009 generally allows a debtor to amend a voluntary petition, list, schedule, or statement as a matter of course before the case is closed, subject to applicable requirements and court authority.

For example, suppose you filed Chapter 7 bankruptcy and two weeks later remembered that you owned a motorcycle worth approximately $4,000.

Your attorney may need to:

1. Prepare amended Schedule A/B to disclose the motorcycle.
2. Amend Schedule C to claim any applicable exemption.
3. File the amended schedules with the Bankruptcy Court.
4. Provide the amended information to the Chapter 7 trustee.
5. Address any additional questions or requests from the trustee.

Depending on the circumstances, the trustee may want to inspect the property, request additional documentation, or determine whether there is any nonexempt equity available for creditors.

The important thing is that the omission is corrected rather than ignored.

An amended schedule does not automatically eliminate every potential problem, but prompt and voluntary correction is generally much better than allowing the trustee to discover the omission independently.

4. What If the Asset Is Completely Exempt?

This is where things get particularly important for Michigan bankruptcy debtors.

Let’s assume you own a vehicle worth $12,000, and after reviewing your circumstances, your attorney determines that the vehicle is fully protected by an applicable bankruptcy exemption.

Does that mean you don’t have to list it?

Absolutely not.

You still must disclose the vehicle.

The bankruptcy schedules contain separate sections for identifying your property and claiming exemptions. These are two different things.

In other words:

• Schedule A/B identifies what you own.
• Schedule C identifies the property you are claiming as exempt.

Just because an asset is exempt does not mean you can leave it off the bankruptcy paperwork.

In fact, failing to properly schedule an asset can create problems even when the asset would otherwise have been fully protected.

There is another important consideration. Under Section 554(d) of the Bankruptcy Code, property that has not been properly abandoned or administered generally remains property of the bankruptcy estate. Property scheduled and not administered is generally abandoned to the debtor when the case closes, subject to the statutory exceptions. Unscheduled property does not receive that same automatic treatment.

That is one reason why properly disclosing an asset is so important. U.S. Code Online+1

5. What Happens If the Chapter 7 Trustee Discovers an Asset I Didn’t Disclose?

This is where an innocent mistake can become a much bigger problem.

Chapter 7 trustees have an obligation to investigate a debtor’s financial affairs and determine whether there are assets available for creditors.

Trustees routinely review bank statements, tax returns, vehicle titles, real estate records, business interests, and other financial information.

Suppose you own a second vehicle that you never disclosed.

At your 341 Meeting of Creditors, the trustee asks whether you own any other vehicles. You answer no.

Several months later, the trustee discovers that you actually own another vehicle.

The trustee is going to want an explanation.

Some of the questions that may arise include:

• Why wasn’t the vehicle listed?
• When did you acquire it?
• What is its value?
• Was there a loan against it?
• Did you intentionally leave it off the schedules?
• Were you aware that you were required to disclose it?
• Did you transfer or conceal the vehicle before filing bankruptcy?

Depending on the answers, the trustee may request amended schedules, additional documents, turnover of the asset, or further investigation.

If the asset has nonexempt equity, the trustee may attempt to administer it for the benefit of creditors.

Remember, the fact that you did not tell your bankruptcy attorney about the asset does not necessarily prevent the trustee from pursuing it.

6. Can I Lose My Bankruptcy Discharge Because I Didn’t Disclose an Asset?

Yes, potentially.

This is one of the most serious consequences of intentionally concealing property or knowingly making false statements in a bankruptcy case.

Section 727 of the Bankruptcy Code identifies circumstances under which a Chapter 7 debtor can be denied a discharge.

Two particularly important provisions are:

11 U.S.C. § 727(a)(2)

This provision addresses the transfer, removal, destruction, or concealment of property with the intent to hinder, delay, or defraud creditors or an officer of the bankruptcy estate.

11 U.S.C. § 727(a)(4)(A)

This provision addresses knowingly and fraudulently making a false oath or account in connection with a bankruptcy case.

Your bankruptcy schedules are signed under penalty of perjury. Leaving an asset off your schedules can potentially constitute a false oath, depending on the circumstances.

However, there is an important distinction between an honest mistake and intentional fraud.

A simple oversight does not automatically mean you will lose your discharge. The circumstances, your knowledge, your intent, the nature of the asset, and what you did after discovering the omission can all matter.

I would never tell a client that forgetting to disclose an asset automatically results in losing a bankruptcy discharge. But I would also never minimize the seriousness of intentionally concealing property.

There can also be potential criminal consequences under 18 U.S.C. § 152 for knowingly and fraudulently concealing bankruptcy estate property or making a false oath in a bankruptcy proceeding.

That is a very different level of exposure than simply forgetting to mention an old bank account. U.S. Code+2

7. What If My Bankruptcy Case Has Already Been Discharged?

This is another situation that comes up.

Suppose you filed Chapter 7, attended your 341 hearing, received your discharge, and believed everything was finished.

Six months later, you discover that you forgot to disclose an asset that you owned when you filed bankruptcy.

Is the problem over because you already received your discharge?

Not necessarily.

As I mentioned earlier, property that was not properly scheduled and abandoned may remain property of the bankruptcy estate even after the bankruptcy case closes.

Under Section 350(b) of the Bankruptcy Code, a bankruptcy case may be reopened to administer assets, accord relief to the debtor, or for other cause.

For example, suppose you owned an interest in a piece of real estate when you filed Chapter 7, but you never disclosed it. You subsequently received your discharge and the case was closed.

The trustee may still have an interest in that property.

The fact that your bankruptcy case was closed does not automatically mean that you now own the property free and clear of the bankruptcy estate.

This is why I tell clients that bankruptcy disclosure is not simply a matter of getting through the 341 hearing. It is important to get the schedules right in the first place. U.S. Code Online+1

8. What If I Didn’t Tell My Attorney Because I Thought the Asset Would Be Taken Away?

Let’s be honest. Sometimes people don’t disclose assets because they are afraid of losing them.

They might own a boat, recreational vehicle, second vehicle, or an interest in real estate. They may believe that if they disclose the asset, the bankruptcy trustee will take it away.

I understand that concern.

But here is what I want you to understand: There is a big difference between owning an asset and having nonexempt equity in that asset.

In Michigan, bankruptcy exemptions can protect substantial amounts of property, depending on the applicable exemption system, the debtor’s circumstances, and the nature and value of the asset.

For example, someone might own a vehicle worth $15,000 but have a loan balance of $12,000. The relevant issue is not simply the vehicle’s value. It is the equity, the available exemption, and any other applicable considerations.

The same analysis applies to homes, boats, retirement accounts, personal property, and other assets.

I have represented thousands of homeowners and other Chapter 7 debtors over my career. Proper exemption planning is an important part of preparing a bankruptcy case.

There are legitimate ways to protect property under the Bankruptcy Code and Michigan law.

Trying to hide property is not one of them.

9. What Should I Do If I Discover I Forgot to Disclose an Asset?

My advice is simple: contact your bankruptcy attorney immediately.

Do not wait until your next hearing. Do not wait to see whether the trustee discovers it. And certainly do not transfer, sell, give away, or otherwise dispose of the asset in an attempt to fix the situation yourself.

Tell your attorney exactly what happened.

I would recommend providing the following information:

• A description of the asset.
• When you acquired it.
• Its approximate value when you filed bankruptcy.
• Whether there are any loans or liens against it.
• Whether you still own it.
• Whether you have received any money or proceeds from it.
• Why it was not included in your original bankruptcy paperwork.

Your attorney can then evaluate the situation and determine the appropriate steps.

In many cases, an amended schedule and an explanation to the trustee will address the problem. In other situations, additional legal work may be necessary.

The sooner the issue is addressed, the better.

10. What If I Am Filing Chapter 13 Instead of Chapter 7?

Although this article focuses primarily on Chapter 7 bankruptcy, full disclosure is equally important in Chapter 13.

Chapter 13 involves a repayment plan, and the debtor’s assets, income, and financial circumstances can affect the amount that must be paid to creditors.

An undisclosed asset can affect the calculation of what unsecured creditors are entitled to receive under the Chapter 13 plan.

Additionally, Chapter 13 has its own rules concerning property acquired after the bankruptcy filing.

For that reason, if you discover an omitted asset during your Chapter 13 case, you should notify your attorney immediately. The schedules and potentially the Chapter 13 plan may need to be amended.

Do not assume that an asset is irrelevant simply because you are making monthly payments under a repayment plan.

The Bottom Line: Tell Your Bankruptcy Attorney Everything!

After 35 years of practicing bankruptcy law, my advice is that you should never try to decide for yourself what is important enough to disclose.

Tell your attorney about everything you own, everything you might inherit, every lawsuit or potential legal claim, every bank account, and every financial interest you have.

Let your attorney determine what needs to be listed, what exemptions are available, and whether the bankruptcy trustee has any legitimate interest in the property.

If you have already filed bankruptcy and suddenly remember an asset that you failed to disclose, don’t panic. But don’t ignore it either.

An honest mistake can often be corrected. An intentional effort to conceal property can jeopardize your entire bankruptcy case.

My job as your bankruptcy attorney is not just to get you a discharge. It is to help you obtain that discharge while protecting as much of your property as the law allows.

If you are considering Chapter 7 bankruptcy in the Eastern District of Michigan, or you have already filed and discovered an asset that was left off your paperwork, I encourage you to contact my office.

I have devoted my entire legal career to bankruptcy law, and I can help you understand your options.

Law Offices of Walter Metzen

313-962-4656

detroitbankruptcylawyer.com

Legal note: This article is for general informational purposes and is not a substitute for legal advice concerning your particular bankruptcy case.