The recent furor over some social media posts by rapper 50 Cent brings to light something people should know about bankruptcy — you can't use it to avoid paying your debts if you actually have the money or assets to do so. Try it, and you just might find yourself hauled back into bankruptcy court for a fraud investigation. This is what you should know.
You have to tell the court everything.
When you file for bankruptcy, you're required to list off all of your debts, income, expenses, and assets. Your financial situation has to be made completely visible to the court — attempt to hide anything and you're committing fraud. About 70% of the time, bankruptcy fraud involves trying to hide assets from the court. Sometimes the debtor tries to hide property or money in someone else's name. Other times, he or she just doesn't list it on the bankruptcy paperwork, figuring that no one will ever be the wiser.
That type of thinking can get you into big trouble. In the rapper's case, he decided to post some pictures online of himself surrounded by cash, piles of which were even used to spell out the word "BROKE." One of his creditors saw the posts and contacted the bankruptcy court. The judge, understandably, had some questions about the transparency of the information that the rapper gave the court about his financial situation.
The penalties for hiding information are serious.
While most people don't have piles of cash that they can stuff into their refrigerator at home to keep it out of the hands of their creditors, people do frequently try to hide their assets. Business owners have been known to divert funds to sham companies in order to hide the money until the bankruptcy discharges. Other people make major purchases, like cars or airplanes, and purposefully leave their names off the title while the bankruptcy is pending, hoping to hold onto the items. Still others will lie about the value the things that they own.
If the court suspects that you've committed bankruptcy fraud, the trustee in your case can start gathering evidence against you through a Rule 2004 examination. Unlike the typical bankruptcy proceeding, which is usually quick and uneventful, a Rule 2004 examination is intense. The trustee can compel just about anyone to testify and can obtain just about any records necessary to determine if you've tried to conceal anything.
If the trustee determines that you've tried to conceal assets or otherwise lied, not only can your bankruptcy be denied (which will then allow your creditors to proceed against you), you can also be fined $250,000 and sentenced to 5 years in prison.
If you decide to file for bankruptcy protection, be completely open about your situation with your attorney, like Arthur M Richard. People are often entitled to keep more than they realize, through a combination of state and federal asset exemptions that can be applied. However, if your attorney doesn't know about your assets, he or she can't help you retain them — and you could end up facing long-term trouble instead.