When filing for bankruptcy, a debtor files a petition with the Bankruptcy Court that is approximately 60-75 pages and contains essential details regarding a debtor’s assets, creditors, income, expenses, property exemptions and other relevant financial information. This important information is required to be set forth in the debtor’s schedules and Statement of Financial Affairs form. A debtor is also required to file a declaration under oath that the information in the petition is true and correct. What happens if a debtor realizes they made a mistake when filing their petition? Federal Rules of Bankruptcy Procedure 1009(a) provides that a “voluntary petition, list, schedule, or statement may be amended by the debtor as a matter of course at any time before the case is closed.” This includes adding information a debtor accidentally forgot to include or correcting a mistake that a debtor discovered after filing their case. Once a bankruptcy case is filed, a debtor must attend a 341(a) meeting, also called a meeting of creditors. At the hearing, the debtor will testify under oath regarding the facts of their case. The bankruptcy trustee assigned to their case will typically ask them if there are any changes that they want to make to their petition. It is imperative for a debtor to correct any errors or omissions in their bankruptcy petition.
Reasons To File an Amendment in a Bankruptcy Case
There are a number of common errors that a debtor will often make when filing their bankruptcy petition. Debtors sometimes inadvertently exclude a creditor or forget to include an asset when filing for bankruptcy. They may fail to consider that they are joint owner of a car, house or bank account. In these circumstances, a debtor may not consider themselves the true owner of the asset. If the debtor is on title to a car or house, or they are a signatory on a bank account, then they are an owner of an interest in that asset. Such an interest must be disclosed when filing for bankruptcy. This is even the case if their name was added to a bank account for convenience purposes or added to a car title or deed to a home for loan qualification purposes..
Sometimes a debtor may forget that they have a personal injury claim if the case was filed a long time ago and still pending. Other times, they have not heard from their lawyer in a while or think their case does not have any value. Additionally, they may not consider the personal injury claim to be an asset since they have not received any money yet. However, even a contingent claim must be listed in one’s bankruptcy schedules. In fact, it is incredibly important to list a personal injury claim since a debtor may forfeit the right to bring or continue the action and lose their standing in the case, if they fail to list it.
[A] debtor’s failure to list a legal claim as an asset in its bankruptcy proceeding precludes the debtor from pursuing such claim on its own behalf inasmuch as the claim remains the property of the bankruptcy estate. A plaintiff who does not properly list claims regarding assets on her bankruptcy petition, lacks standing to maintain an action regarding those assets. See Chantal Jean-Paul v. 67-30 Dartmouth St. Owners, No. 12550/14 (N.Y. Sup. Ct. 2017)
Other common errors include leaving a creditor out of the debtor’s schedules or failing to claim an allowable exemption. It is important to list all of one’s debts when filing a bankruptcy petition, that way every creditor receives notice of the case. Properly claiming exemptions, which protects the assets of a debtor, is also important to the successful outcome of a debtor’s bankruptcy case. If an allowable exemption is omitted, a debtor should amend their schedules to prevent an asset from being potentially administered by the trustee. Additionally, if a debtor needs to update or change their address with the court, this is technically not an amendment, rather a debtor updates their address with the court by filing a Debtor Change of Address form with the Bankruptcy Court.
Finally, a debtor must file an amendment when the bankruptcy trustee requests it at their 341 meeting. It is best to discover and fix any errors in the petition and schedules prior to the hearing with the trustee. However, if the trustee discovers an error and requests that it be fixed, a debtor must comply. It is important to follow through and file any amendments or additional paperwork the trustee requires to ensure that a discharge is obtained, and a case is closed.
Why is it Important to Amend your Bankruptcy Petition or Schedules?
Sometimes, when a debtor amends their petition and schedules, it is of minor consequence since a debtor can simply amend their petition and schedules. For example, if they are adding an asset that is fully protected, they can use an appropriate exemption in their amended schedules. However, sometimes the debtor adds an asset that is non-exempt, or is only partially protected by an exemption. For instance, a personal injury claim may be wholly within the exemption or only partially exempt. A trustee may seek to administer a partially exempt personal injury claim, however they may abandon it, if the recovery to the estate is not meaningful. Sometimes a debtor’s amendment adds an asset that provides a potentially significant recovery for creditors. For example, an interest in real estate or a personal injury claim (even if partially exempt) can lead to a significant recovery, but still should be listed in order to obtain a discharge and at least be able to claim the allowable exemption, even if it only provides a partial exemption. It should also be noted that if there is a recovery that is above the balance of the creditors proof of claims and Trustee fees, the debtor will get the remaining net recovery. Those creditors that failed to file timely proofs of claims gets discharged and will not be paid.
One of the bankruptcy trustee’s roles at a 341(a) meeting is to ask questions that can reveal non-exempt assets in a bankruptcy case and provide a return for creditors. However, under bankruptcy code § 727(a) a debtor’s discharge can be denied if the debtor conceals property within one year or after the filing of the bankruptcy. This section of the bankruptcy code also provides that a discharge can be denied if the debtor makes a false oath in their bankruptcy case or fails to explain the dissipation of assets.
Concealing assets or not being truthful in testimony at a 341 meeting can even lead to a criminal referral for a debtor. For example, Teresa and Joe Giudice of the Real Housewives of New Jersey pleaded guilty in 2014 to bankruptcy fraud, as well as mail and wire fraud. According to the US Attorney in the case: “The Giudice’s together deceived financial institutions with patently false loan applications; were dishonest when they sought the protection of the bankruptcy court and hid assets and income from the trustee.” Teresa served 11 months in prison and Joe, who also admitted that he did not pay approximately $200,000 in taxes, served 41 months in jail. In addition to the prison terms, the couple was sentenced to two years of supervised release and ordered to forfeit $414,588.
Another example is Lenny Kyle Dykstra, an All-Star outfielder who played for the New York Mets and Philadelphia Phillies. In 2012, he pleaded guilty to bankruptcy fraud, concealment of assets, and money laundering. As result of the guilty plea, Dykstra was sentenced to six months in federal prison and was ordered to perform 500 hours of community service. Dykstra admitted that he lied about taking and selling items that were part of the bankruptcy estate. Dykstra also admitted that he concealed property from the bankruptcy estate, including baseball memorabilia that he sold and then laundered the $15,000 proceeds by purchasing a cashier’s check in another person’s name.
When filing a bankruptcy petition, a debtor is declaring under penalty of perjury, that all the information in their bankruptcy petition is true and correct to the best of their knowledge. If something is incorrect or missing, it is essential that a debtor file amended forms with the Bankruptcy Court. It is in a debtor’s best interest to fully disclose all their information, to the best of their knowledge, concerning assets and liabilities when filing for bankruptcy. By filing amended forms with the Bankruptcy Court, a debtor is showing the Court that they are doing their best to be honest and truthful.
Contact the Law Offices of David I. Pankin, P.C.
If you have any questions regarding amending a bankruptcy petition, please feel free to contact the Law Offices of David I. Pankin, P.C. We have over 28 years of experience in Chapter 7 and Chapter 13 bankruptcy matters. You can schedule a free consultation by calling us at (888) 529-9600 or by using our easy contact form.
