If you ever thought of hiding your assets – usually through giving it away to your relatives, pretentiously “selling” it or other means of hidingit– to protect it from asset seizure and liquidation during a bankruptcy case, we suggest you think twice (and ultimately, to not do it!)
One of the most common tactics used by debtors when under a bankruptcy case is to hide their assets. They do this to protect them from being taken away from them. One of the most common way of doing this is by giving your properties away to someone you trust – usually a relative or a very trusted friend.
However, this tactic can do harm for you and your case than good. In fact, if you are caught hiding your assets, you will face one of these three possible sanctions:
- Disqualified for debt discharge (a benefit you could have received after filing for bankruptcy)
- Avoid or nullify property transfer and other related transactions
- Possible criminal liability & prosecution
In short, hiding your assets and properties is simply not the best option when you file for a bankruptcy case. Here’s what you need to know.
Different Chapters Offer Different Options
If you are not yet aware, bankruptcy actually have three different options – or Chapters. Each Chapter have their own method of solving your debt problems.
- Chapter 7 – This is the Chapter where asset liquidation is the priority, hence most people opt to avoid this. However, if you can’t really pay your debts, Chapter 7 can be your best option.
- Chapter 13 – This Chapter will protect your assets and properties (at least, temporarily) and give you enough time to restructure your finances and create a repayment plan. This is suitable for individuals and small businesses.
- Chapter 11 – This is very much the same with Chapter 13, only that this is suited for big businesses and corporations. Owner/s are given the chance to retain power in their business as they reorganize their finances and create a repayment plan to pay their creditors.
If you are a farmer or fishermen, there is a relatively new Chapter, Chapter 12, which is created to specifically solve farmers’ or fishermen’s debt cases.
If you will look closely, asset liquidation isn’t even the first thing to do during a bankruptcy. Even in Chapter 7, asset liquidation is done by assessing your properties and see which should be taken and which you should keep – yes, you can keep some assets based on your state’s law.
In other words, hiding your assets is really a bad move (and an unnecessary one).
Exemption from Asset Liquidation
Another thing you should learn is that, not all assets will be taken away from you, as mentioned already above.
Some assets are exempted from being taken away from you to ensure you still have your basic needs like home to stay and some financial capability to rebuild yourself after your bankruptcy case. Which asset is exempted and not is usually determined by your state’s law.
Penalty for Hiding Your Assets & Properties
Despite these measures, many people still think of hiding their assets (or sometimes, actually hiding their assets at all). This is mainly due to unfounded fears they have towards bankruptcy. So we will settle the truth once and for all: depending on your Chapter and case, you mostly have a chance to protect some, many (or sometimes, even all) of your assets. Also, hiding your assets is really a bad idea, and we will cover in detail the penalties and sanctions you will get for doing so.
Disqualified for Debt Discharge
One of the benefits you will receive for filing a bankruptcy case is having your debts discharged – with some exemptions, of course. This is the ultimate goal of bankruptcy, anyway – to have you relieved of your debts.
However, if you’re caught hiding your properties, you could be disqualified for debt discharge, furthering you of your financial burdens.
Nullifying Asset or Property Transfer
Your trustee also have the capability of nullifying any asset or property transfer that’s deemed you did on the purpose of “hiding” it to them. Usually, these are the assets and properties you’ve transferred prior to filing for a bankruptcy case.
Your trustee can nullify these transfers and give them to your creditors as payment.
The exemption are exempted assets – your trustee and creditor won’t take them in the first place.
Possible Criminal Prosecution
When worse comes to worst, you could even be criminally prosecuted if you try to hide your assets and properties to your trustees and creditors.
The case that will be filed against you is bankruptcy fraud, and it’s a federal offense that can land you in prison, fine you for up to $250,000 or even both.
We have already established why hiding your assets and properties during a bankruptcy case is not a good idea. To sum up why:
- Asset liquidation is often a last resort, anyway. If you have a capability to restructure your finances to pay your debts, you can save many (or even all) of your assets.
- You have options when you file for bankruptcy, called Chapters. Except Chapter 7, these Chapters will keep your assets to you (at least, temporarily or until you pay all your loans). Again, asset liquidation is the last resort.
- It will simply do more harm than good on your side.
If you need any legal help or consultation, you can visit Tang and Associates, an Irvine bankruptcy attorney to help you with your case!