by Adam Mack, J.D. Research Assistant Hillary StirlingTHE SCENARIO:A debtor wants to file bankruptcy, but she has separate savings accounts in her name that she intends to use for her kids’ education. Naturally, she doesn’t want to include that hard-earned (or gifted) money in her bankruptcy.WHAT COULD GO WRONG:The first problem here is that the debtor hasn’t set up a Coverdell Education Savings Account or 529 Education for the funds, so that money technically could be used for anything. Even if her intent is to use it for education, it’s not an “education savings account” until it’s in an account that’s designated by the government for education purposes. The second, bigger problem is that omitting any account makes it more likely she’ll lose that money, not less. Bankruptcy has built-in protections called exemptions for assets like houses, cars, jewelry, etc., and if the debtor deliberately omits the savings account (or any other financial account), then that account won’t be protected by the appropriate exemption. Without the protection of an exemption, that money, if discovered, would most likely be included in the portion of the bankruptcy estate that’s used to pay off creditors. Between the state-appointed bankruptcy trustee (who is literally a professional at finding assets) and the creditors themselves, the chances of that omitted account being discovered is very high. The third and biggest problem is that purposely omitting the account isn’t honest. As part of the bankruptcy filing, the debtor swears under oath that she or he has included all of her or his assets in the schedules. Lying under oath is perjury, and lying under oath in a bankruptcy is bankruptcy fraud, which is a federal crime. The consequences for perjury could range from simply having the case tossed to facing large fines (up to $250,000) to jail time, while the consequences for bankruptcy fraud include everything for perjury plus the possibility that certain debts become permanently nondischargeable. Our laws don’t take any form of dishonesty in the courtroom lightly, and it’s simply not worth the risk, especially when exemptions provide the protection the debtor is seeking.THE MOST IMPORTANT PARTDon’t leave any assets out when preparing a bankruptcy. Anything that isn’t included in the paperwork is fair game for creditors, and a debtor’s best bet for protecting assets is the exemption, not trickery. A qualified Kansas bankruptcy attorney can help you determine which assets are protected by exemptions and which ones (if any) are at risk. Call us today to learn more!
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