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Why Honesty Pays Off in Bankruptcy

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Why Honesty Pays Off in Bankruptcy

Written by Charles Newland on . Posted in Bankruptcy

A dummy in rain with insolvent words, bankrupcyPeople who choose to file for bankruptcy protection in Illinois must be honest, and if they are not, they could face criminal charges and have their bankruptcy petitions dismissed. While criminal charges are not always filed, bankruptcy courts may still impose other penalties against people who try to hide or conceal assets or who lie on their schedules. When a person is honest with his or her bankruptcy attorney and with the trustee, then it will pay off in the long run when the person obtains financial relief through his or her bankruptcy discharge. A recent case shows how the court may penalize people who try to hide assets and income from the bankruptcy trustee.

Court Orders That a Woman Will Never Have Debts Discharged

In a case that was decided in Kansas, a woman who had filed multiple bankruptcy cases since 2002 filed a fifth case in 2013. She had filed for protection under Chapter 13 of the bankruptcy code, which requires debtors to submit repayment plans through which they repay a portion of their debts over a period that lasts from three to five years under the supervision of a bankruptcy trustee.

After she filed, the woman sued her employer without telling the trustee. She settled the case for $25,000. Instead of informing the trustee of the settlement money, she spent it, which is a violation of bankruptcy court rules. When the trustee found out, he moved to modify her repayment plan to incorporate the additional $25,000 that should have gone to repay the woman’s creditors. The woman moved to dismiss her own bankruptcy case, but she stated that she intended to refile another bankruptcy matter later to discharge her debts. The court ruled that it couldn’t stop the woman from dismissing her case. However, it ruled that the debts from her bankruptcy petition could never be discharged in a future bankruptcy case if she did refile.

Other Penalties

Having a bankruptcy case dismissed or not having debts discharged are not the only penalties people can face when they are dishonest. When people file their schedules, they swear under penalty of perjury that they are truthful. People may face criminal charges carrying up to 5 years in prison, a fine of up to $500,000 or both. People may also have their discharges revoked if the trustee discovers hidden assets after the discharge. A bankruptcy attorney advises people to always be honest during their cases.

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