July 11, 2009

Don't even try to game the system - bankruptcy is designed for the honest debtor

Although the large majority of debtors are honest and good people, a good number of debtors who have "funky facts" call me every single day. It seems that they would like me to help them to beat the system through the use of the bankruptcy process. This is not how it works, and I tell them so. Bankruptcy laws are designed with lots of nets to catch bad guys. Trust me on that one. If you try to defraud the bankruptcy court, you can end up in PRISON and with fines so big it will make your head spin, and so can your attorney if they conspire with you.

Case in point: The other day I was at a 341A meeting of creditors, waiting for my client's turn. Ahead of me was a couple in a Chapter 13 case who were literally being reamed by the Chapter 13 trustee. Apparently this was their fifth continued 341A meeting and they had just filed amended schedules that were vastly different from their original schedules. Initially the wife had said in her bankruptcy schedules that she was a housekeeper, and when the trustee had previously questioned her UNDER OATH, she reiterated that that is what she had been for several years, and that as a couple they made about $6K to $7K per month. In the amended schedules, however, the couple now stated that they had been running some type of corporation for the last two years and had been bringing in $17,000 a month all that time. The trustee was flabbergasted, and asked them repeatedly how this was possible. This is a huge discrepancy and they had never mentioned it in the last four times they had been in front of him. They couldn't answer the trustee and they eventually made some lame excuse like they didn't know what was in their original schedules because their attorney drew them up -- (more on THAT issue later), and that the original schedules were correct "to the best of their knowledge". The trustee didn't buy that, and neither did I. It was a stupid excuse, and not at all convincing. These people were clearly lying about a lot of things, and they lied under penalty of perjury several times.

The trustee finally told them, "Look, I want you to know that I have reported you to the Department of Justice for investigation." The couple didn't even react. They knew they were full of baloney. If that had been me, I would have started freaking out right there, but these people didn't even bat an eyelash. I don't know what is going to happen to these people, but they may end up in prison and with fines in the several hundred thousands of dollars. Was it really worth it to try to game the system? I think not.

The reason I tell this story here is to make the point: YOU CAN'T GAME THE SYSTEM. Bankruptcy laws have been developed over hundreds of years and there are safeguards all throughout them to catch people just like this couple. The moral of the story is, if you want the benefit of the good things that bankruptcy has to offer you, namely, tax-free debt forgiveness, then you have to play it straight and put your cards on the table. That's it. There is no other way.  I am not saying this to scare you, but to educate you as to how this process works so you can go into it with your eyes open.

Have you ever seen that show, "World's Dumbest Criminals"? That reminds me a lot of people I have seen in the bankruptcy world who are trying to beat the system. They think they are a lot smarter than they are. Don't kid yourself - the system is much older and wiser than you. Be honest.