Charlie was a bad man. With his aggressive personality he intimidated and threatened others if they didn’t give into what he demanded. He grew rich on the work of others and reminded everyone that without him they were nothing, but such men are destined to fail because they never have enough and so they continuously pledge their empire to gain an even larger empire. In the process they go too far and eventually make risky investments that fail starting a cycle of going from bank to bank and victim to victim seeking precious cash to keep operations going. Realizing that everything he owned would soon be taken away as the banks began to seize his assets, Charlie transfers assets to family members and trusted confidants. But the banks start litigation for unpaid debts and their attorneys ask sharp questions about where all the assets went to and it becomes obvious that there is nowhere to hide. Feeling cornered, Charlie hires a cheap attorney who asks few questions of the know-it-all businessman and files a bankruptcy case. Of course, the bankruptcy petition fails to list all his assets and is completely blank as to all the transfers that occurred in the past year. Predictably, the bank’s attorneys show up at the bankruptcy Meeting of Creditors and begin pounding Charlie with questions about the location of his assets and the various transfers and demand explanations for the inconsistencies between what he wrote down on his loan application and the reality of his financial situation. Charlie gets a bad feeling that filing bankruptcy was an unwise decision and requests that his case be dismissed only to find that the Court and his executioners have no intention of letting him walk away. Welcome to the bankruptcy electric chair, Charlie.
Bankruptcy is a process designed to illuminate, not to conceal. To file bankruptcy is to strap oneself in for an examination.
When you have something to hide the last place you should be looking to park yourself is in the United States Bankruptcy Court. Although bankruptcy does protect a certain amount of exempt property there is a limit to the property exemption laws and that which is not exempt must be turned over to the Chapter 7 Trustee for liquidation. So, bankruptcy courts have a dual purpose: to protect and to liquidate. To facilitate the liquation function the Bankruptcy Code gives Chapter 7 Trustees special powers to avoid and undo fraudulent property transfers or preferential transfers to inside creditors (i.e., transfers to family members or business associates). In addition, the bankruptcy petition signed by debtors under penalties of perjury require a debtor to list each and every property transfer occurring within two years of filing bankruptcy and the Trustee may void fraudulent transfers occurring during the prior four years. The Trustee must be furnished bank statements and tax returns and creditors can easily schedule “2004 Exams” to interrogate debtors about their financial dealings. In short, bankruptcy is a process designed to illuminate, not to conceal. To file bankruptcy is to strap oneself in for an examination.
Unlike Chapter 13, Chapter 7 does not provide for an absolute right of the debtor to dismiss the case.
Charlie’s request to dismiss his case was denied. The court may only dismiss a Chapter 7 case for good cause. (See In re Turpen, 244. B.R. 431 (8th Cir. BAP 2000), and the primary factor in such a motion is whether it is in the best interest of the creditors to dismiss the case. In re Schafroth, 2012 Lexis 2346 (Bankr. New Mexico) (debtors who claimed $120,000 deposited in Swiss bank account were exempt were not allowed to dismiss case when exemption denied). Unlike Chapter 13, Chapter 7 does not provide for an absolute right of the debtor to dismiss the case. For Charlie’s creditors their best interest is served by keeping him locked into his electrifying bankruptcy chair, to use the powers of the bankruptcy proceeding to return transferred property and to investigate his business associates and banking relationships. He has given them powers to attach his property that would not existed to the same degree outside of bankruptcy.
Got something to hide? Don’t want to answer too many questions? The last place you want to find yourself is in a witness chair of the United States Bankruptcy Court. Do yourself a favor, look for a sunny beach instead.