Bankruptcy and the Unknown Asset
by Susanne Robicsek, North Carolina Bankruptcy Attorney
If you are filing for bankruptcy but you have an asset that you don’t have information about, can you just put down “unknown” and leave it at that? That depends.
The short answer is that you can file your bankruptcy case without all your information, meaning it is possible to do it, however I don’t recommend it under most circumstances.
First and foremost, filing bankruptcy without having all the information you need could get you into a lot of trouble or complicate your case, depending on the circumstances, why, and how it is done. You don’t want your case to turn into a train wreck, but sometimes you don’t have a choice.
Problems you might face may be something as simple (but humiliating) as being verbally reprimanded by a Trustee at a creditors meeting for not having the information on the bankruptcy petition, or it might involve more serious problems like motions, litigation, contempt/sanctions, and to being taken to court to have the judge determine what to do.
Unresolved issues in a bankruptcy case can drag out the bankruptcy proceedings for a long time, and tie up the debtor in court for months or even years. The trustee can subpoena records from the people who may have information about assets of a bankruptcy estate, and they can also depose or sue to get some answers.
In some circumstances, the debtor may not only face monetary costs, loss of property, and denial of discharge – but they can also face bankruptcy crime prosecution.
Bankruptcy fraud is a federal crime, and not something to be taken lightly.
I know it is frustrating having to deal with providing all the information your attorney asks for, but I assure you that it is done for your protection. When they choose to seek protection from creditors by using the bankruptcy laws, debtors are required to provide accurate information on the petition.
If the answer really can’t be found, then “unknown” might be the only answer you can give, but it also carries some risks.
If someone is tempted to list property as unknown because they simply don’t want to go to the trouble of finding information, they might just find themselves having to explain why they did it to a judge.
I can assure any debtor that they want to avoid potential problems in their bankruptcy case, to the extent that they can do so. One certainly doesn’t want issues to come up that could have been avoided with a little legwork.
In the rare situations that you just can’t come up with what something is worth and there is no way to find out, the only thing to do may be to list a value or asset is as “unknown.”
That might be appropriate for something whose value can not be determined – like a one of a kind object that no one knows what it is worth, or for property that a client would have to incur high costs to appraise.
Sometimes it isn’t even an object, but is a legal claim that’s worth hasn’t been determined yet.
In those cases, the client should provide as much information as possible to the trustee and cooperate as much as they can. They should only do this if they understand that they are handing over the property to the court for sale, no matter what the value is. They should be prepared for the trustee to take control of the property and sell it for whatever they can get.
Listing something as unknown is not something you should so without making every attempt to get the answers first. You should be as forthright as possible, be prepared to hand over the property to the court for liquidation to pay your debts, and it is not something you should do it without discussing with your bankruptcy lawyer.
This can also depend on the type of case that is filed. Chapter 7 trustees take control of property that is the debtor can’t keep, and they sell it to pay towards the debts.
Chapter 13 trustees don’t ordinarily take and sell property. In Chapter 13 bankruptcy cases, the debtor is ordinarily the one who will retain or sell the property. That means that the debtor might be required to come up with a plan, find a value, or figure out how to sell the asset – even if it is difficult to do.
Once the case is filed, you can’t easily turn back if you find out that you just handed over something that could have paid off your debts in full. I don’t normally recommend giving up property without having a general idea of what you are giving up but how much you owe, what protection are looking for with the bankruptcy filing, and what benefits you get are all factors to weigh.
For example maybe someone isn’t sure of a value but they are pretty sure it is worth no more than $X. If the debt owed to creditors is many times more than what you think the property is worth, you might determine that filing makes sense whatever the property is worth since you know you are going to be discharged from your debts.
So even if you aren’t quite sure of values, disclose as much as you can, know what your goals for filing are, and know what you are giving up. Provide as complete and accurate information as you can to increase the chance of a quick and smooth journey through bankruptcy.