The question came from the audience of my presentation to bankruptcy lawyers on techniques for the initial interview with the client. It boiled down to: what are the consequences for not doing a skillful job of extracting the whole story from the client.
The consequences, in my experience, are dreadful: you cannot usually dismiss the case, and your client’s choices are surrender the asset or convert the case and pay its net value to creditors in a Chapter 13.
Sometimes, you may be able to amend the schedules and assert an exemption in the omitted asset, although there are cases that hold that the debtor can’t claim an exemption in unscheduled assets.
I likened the decision to file Chapter 7 as walking through a door that locks behind you: once having elected to file bankruptcy, the debtor can’t bail out when bankruptcy becomes inconvenient.
After all, rule that permitted a cost-free exit from bankruptcy when caught gaming the system would not promote honest disclosure. There is a reason that my questionnaire for the client says, at the top of the page about assets: List it or Lose it.
The bankruptcy attorney’s mission is to convey that sense of irrevocability to the client before the chapter 7 bankruptcy is filed so that the entire story comes out in advance. If you, as the attorney, have a full deck of cards, you may advise that the client not file bankruptcy, or at least, not now. You may suggest Chapter 13, where the right to dismiss the case is absolute (unless you are in the 9th Circuit.)
My anthem to bankruptcy lawyers is to spend time, face to face with the client, explaining and exploring. Listen carefully for clues about assets and situations; ask open ended questions, then go over the draft schedules carefully before signing. Once the case is filed, your options decrease.
Image courtesy of JMRosenfeld