Attempt to hide retirement account backfires on debtors
A North Carolina bankruptcy case illustrates how important it is for people in New York to honestly disclose assets when filing for bankruptcy protection. After investigating a complex bankruptcy case, a judge on the U.S. District Court for the Western District of North Carolina concluded that a debtor’s hidden individual retirement account that held approximately $234,000 could be accessed by creditors because it was not revealed during the bankruptcy process.
The trustee who had been supervising the case initially closed it after discharging the debts, but a new foreclosure action by First Bank triggered a new examination of the case. The trustee requested that the court sell the house that had been previously protected. Upon finding that no equity was available to satisfy creditors, the judge blocked the sale of the home. The renewed scrutiny of the case, however, exposed the man’s individual retirement account that he had previously made withdrawals from.
The husband and wife debtors had allegedly told lies and misrepresented their financial situation. The district court determined that the their acts of bad faith and incorrect statements made under oath were grounds for allowing the liquidation of the husband’s IRA for the benefit of creditors.
A person considering bankruptcy might avoid mistakes about asset disclosures by consulting with an attorney. The attorney could sort out the debtor’s financial situation and explain which assets could be claimed by creditors and which could be protected by the court. Information about a consumer’s rights when dealing with creditors could be provided. The eligibility and other requirements of both a Chapter 7 bankruptcy and a Chapter 13 bankruptcy could also be explained by the attorney during a discussion of available forms of debt relief.