Full disclosure critical when completing the Statement of Financial Affairs

April 26, 2013 (Press-News.org) Full disclosure critical when completing the Statement of Financial Affairs

Article provided by Law Office of Geri Lyons Chase
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Whether a debtor is a business filing Chapter 11 or an individual filing Chapter 7, one form that is part of every bankruptcy petition is the Statement of Financial Affairs. The Statement of Financial Affairs is an important part of a bankruptcy petition, making its accuracy and completeness critical for the smooth, orderly and successful operation of the bankruptcy process.

Statement of Financial Affairs guides court in evaluating bankruptcy petition

The Statement of Financial Affairs plays an important role in providing the bankruptcy court with the information necessary for it to understand and assess a debtor's financial history over certain periods of time before, and occasionally since, filing for bankruptcy. It is this financial information on which the bankruptcy court will rely when deciding whether to grant or deny a petition for bankruptcy. A debtor who fails to make the required financial disclosures runs the risk of having the petition denied or granted improperly. Also, delays in the process may result if the form has to be subsequently amended to include missing or inaccurate information. For example, if information reported in the Statement of Financial Affairs about a debtor's assets are inconsistent with the assets listed in Schedule A (real property) and Schedule B (personal property) of the petition, the inconsistency must be resolved before further action can be taken on the petition.

Serious penalties for making false statements in the Statement of Financial Affairs

By signing the Statement of Financial Affairs, a debtor declares, under penalty of perjury, that the information in the statement is true and correct. The bankruptcy court takes this declaration seriously and is authorized to penalize a debtor for making a false statement in the form by assessing a fine of up to $500,000, ordering imprisonment for up to five years or both.

A recent Maryland case highlights the serious nature of the consequences for making false statements in a petition for bankruptcy or in a bankruptcy proceeding. The case, described in a press release (Randallstown Man Convicted of Bankruptcy Fraud and Filing False Tax Returns) issued by the United States Attorney's Office for the District of Maryland, involved a Chapter 13 petition for bankruptcy filed in the United States Bankruptcy Court for the District of Maryland. At issue was a debtor's failure to disclose in the initial Statement of Financial Affairs, in the amended Statement of Financial Affairs or under oath in a meeting with creditors, income totaling more than $415,000 and an ownership interest in a house estimated to be worth $325,000.

Not only was the debtor's bankruptcy petition denied, he was prosecuted and found guilty and convicted of one count of providing false testimony under oath in a bankruptcy proceeding with creditors, four counts of bankruptcy fraud and four counts of falsifying bankruptcy records. The debtor faces a five-year sentence for providing false testimony, five years for each count of bankruptcy fraud and 20 years for each count of falsifying bankruptcy records.

Working with a bankruptcy attorney

When working with a bankruptcy lawyer, it is critical that debtors be as candid and honest as possible -- this is the only way a bankruptcy attorney can represent a debtor fully. If a debtor is unsure whether a particular asset, transactions or income source should be included in the Statement of Financial Affairs, it's better to ask an attorney rather than face the potential consequences and penalties for not making the required financial disclosures.