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Crucial Question: What Do I Need to Disclose to the Bankruptcy Court, and Why?

You don’t like the idea of disclosing your financial life to the bankruptcy court. Can’t it be done with some privacy?


The Costs vs. the Benefits

Let’s face it: there are certainly some costs that come with the benefits of writing off all or most of your debts and the other protections of the bankruptcy laws. Depending on your attitude about all this, the general frustration and embarrassment of needing to use this legal option is one of the costs. Related to that is the indignity of having to put on paper certain details of your finances.

What this “costs” you does depend on your attitude. We’re not here to tell you what your attitude should be about making use of the bankruptcy laws—it’s a deeply personal thing. What we do suggest is that you DO think about and weigh the costs and benefits involved. Find out from blogs like this and from your own attorney what are the true “costs” involved, what are all the likely benefits, then make sure you understand the options, and make a calm decision about whether it is worthwhile to file the type of bankruptcy that is best for your circumstances.  

The Reason for the Required Openness

It may help to know that there are limits on what you need to disclose. It may also help to know why you need to disclose your financial information.

One of the core principles of consumer bankruptcy law is that people who get into financial trouble should be allowed a fresh start, but to do so they have to meet certain usually reasonable conditions.  For example, you generally can’t write off a debt if you incurred that debt by committing fraud, such as by lying on a financial statement about your assets. Similarly, you can’t write off your debts if you’re trying to cheat the system. So you have to be candid about your debts, your assets, income and expenses, and other aspects of your financial affairs so the bankruptcy system can see whether you meet the required conditions. You can’t try to hide the ball from the bankruptcy court.

While you might not like disclosing your financial details to the scrutiny of the bankruptcy court and bankruptcy trustee, the system operates under a strong theme of openness. Again, you only get its protections if you follow the rules. Basically, you get the rather generous benefits of the bankruptcy system if you are an “honest debtor.” And the purpose of the information you provide is essentially to establish that you qualify as that “honest debtor.” The vast majority of people filing bankruptcy ARE, and in all likelihood you are, too.

The First Person to Be Honest With

After facing your situation candidly and maturely yourself, and then hopefully with another person or two who you know and trust, we then urge you to be completely upfront with your attorney. If you have a first meeting with one who don’t feel like you can be frank with, don’t hire him or her. Find one with whom you can speak with freely and candidly. He or she is the person can tell you objectively what you legally need to reveal and what you don’t need to, and why, and what, if any, the consequences for doing so will be.  If you do this you will get the peace of mind that you are being that “honest debtor” and so can expect to get the benefits of being one.


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