How to Go to Jail for Filing Bankruptcy

It doesn’t happen often, but about once a year I read about someone in this part of the Country going to jail for being stupid.  I’m sorry, I shouldn’t be rude about it; but there just isn’t much you can call smart about going to jail for Bankruptcy fraud.

The most recent fact scenario happened in Arkansas, but I have seen very similar facts several times in Oklahoma.  (Fortunately, none have been my clients.)  Here is how this particular story plays out.  Client has something he doesn’t want to lose.  Client also has a ton of debt.  The client is concerned (rightly or wrongly) that if he files for bankruptcy and owns this asset he wants to keep that the Trustee will take it away from him.  Maybe the client is right, and maybe he isn’t.

Where the client goes really, really wrong is the client decides that he is smarter than the system.  Instead of talking to a good, Bankruptcy lawyer about how to best protect this asset and still get relief from his debts, the client decides to transfer the asset to someone else and just say nothing.  The client is gambling that no one will ever be the wiser.  Maybe the transfer is even semi-legitimate.  Possibly the client transfers the asset to someone to whom he owes a significant debt, and maybe if that had been properly disclosed it would have been a viable pre-bankruptcy plan; but NOTHING is viable if it is concealed.

So, client goes to lawyer.  Lawyer asks client if he has sold or given away anything of value in the last two years that hasn’t already been discussed.  Client says, no, of course not.  Bankruptcy is filed with none checked on the question on the Statement of Financial Affairs regarding transfers.  Bankruptcy trustee appointed to administer the case finds a record of the asset in question — trust me, they have ways.

At this point nothing good is going to happen.  The Debtor MIGHT just lose his discharge — or he might go to prison.  It really depends on the facts.  The point here is that this is completely avoidable.

If you have an asset you really don’t want to lose, call a good, bankruptcy lawyer sooner rather than later.  Give yourself some time, because even if (and this is a big if) you would, in fact, lose that asset if you were to file for bankruptcy; there may be a legal and legitimate way to change that result.

Regardless, it isn’t worth going to prison over.  Talk to a lawyer.  Be honest and up front with the lawyer.  Sometimes they really do know the solution to that which scares you.


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