The short answer: To avoid fraud charges and to prevent the bankruptcy trustee from taking assets which may be exempt.
Most people file bankruptcy because they can no longer pay their creditors. When you file a Chapter 7 bankruptcy you are asking for the federal government to stop all your creditors from collecting, and appoint a trustee who will collect for them up to the limits allowed under bankruptcy laws. The appointed trustee also has the job of detecting fraud, by finding people who are making misrepresentations as part of the bankruptcy process.
A good bankruptcy attorney can prepare the bankruptcy filings so that nothing is omitted. The trustees do not just look for statements that are not correct on the filings, but also statements that are missing. Bankruptcy filings require you to list all of your assets, and require you to sign under oath that you have listed all of your assets. You will then have a hearing before the trustee where you will take an oath and state under oath whether you have listed all of your assets. If you have omitted items, even inadvertently, there is a risk that the trustee will look further for fraud in your case. If a trustee believes there is fraud, then they will file a motion to prevent you from having your debts discharged or forgiven.
One example of an “asset” that is commonly omitted from schedules is clothing. While most people do not consider their clothing an “asset,” bankruptcy trustees see this omission as evidence that the debtor is being untruthful if no clothing is listed as an asset. (If you do not have any clothing the trustee will expect you to arrive at your hearing without any clothing!)
The trustee is required to represent the creditors, and collect as much money as bankruptcy law allow. If you have items that you are allowed to keep in bankruptcy, but you do not claim “exemptions” on these items, or if you claim exemptions incorrectly, the trustee may be able to take those items. The trustee does not represent your interests, except to prevent unfair practices from the creditors after the bankruptcy filing. The main task of a bankruptcy trustee is to collect money for your creditors. A trustee will do this task much more fairly than your creditors in most cases (there may be some fair creditors out there), and will follow the law as they understand it. The trustee is represented by an attorney, and if a dispute arises as to what the law allows the trustee to take, an attorney will be presenting the trustee’s case to a judge. If you are not represented by a good attorney and a dispute arises, it will be very difficult for you to understand and present your case to the judge, as much of bankruptcy law has been developed by the courts, and takes years of study to fully understand.
Do you need a bankruptcy attorney? Yes, because the risks of going through the bankruptcy courts unrepresented are high: you risk the chance that you will not get a discharge, you risk the chance that you will lose assets that should be exempted, and you risk the chance that you will be accused of fraud and face criminal prosecution.
To avoid the filing pitfalls discussed in this article, consult an attorney at The Carroll Law Firm to discuss bankruptcy exemptions and whether filing bankruptcy is in your best interest.
