Commonly Omitted Assets in Bankruptcy & Their Effect On Creditors

 Posted on December 11, 2024 in Asset Recovery

Creditors facing one or more debtors who have filed for bankruptcy protection may be understandably concerned about getting paid on outstanding debt. Sometimes debtors will omit assets from the bankruptcy filing intentionally or by mistake, which may affect the value of the bankruptcy estate and the likelihood that creditors – particularly unsecured creditors – will get paid. An experienced Chicago creditor representation attorney can advise creditors concerned about getting paid when a debtor files for bankruptcy.

How Can Omitted Assets Affect Creditors?

How creditors are paid in bankruptcy depends on many factors, including the type of bankruptcy protection the debtor has filed. Yet as a general matter, creditors are paid from the bankruptcy estate, which is made up of the value of the debtor’s assets sold by the bankruptcy trustee. That means that the value of the bankruptcy estate will be determined by the value of the debtor’s assets, which debtors must list on the Schedule B form of the bankruptcy filing.

Creditors will be paid based on a priority system, with unsecured creditors paid after creditors whose debts are secured by specific collateral. Unsecured creditors are less likely to be paid if the bankruptcy estate is not large enough to cover their debts. That is why the omission of assets can have a big impact on creditors getting paid.

What Are Commonly Omitted Assets in Bankruptcy?

• Interests in companies

• Claims from lawsuits 

• Accounts receivables

• Weapons

• Lottery winnings

• Beneficial interests in trusts

• Retirement benefits

• Inheritances

• Fur coats, jewelry, handbags, and other expensive accessories

• Vehicles

Are There Remedies if a Debtor Hides Assets?

When a debtor files for bankruptcy, there are serious consequences for failing to disclose assets. Most of these will be in the bankruptcy trustee’s hands and include:

• Bankruptcy fraud: If intentional, hiding assets in bankruptcy can result in the debtor facing criminal liability.

• Denial of discharge: A debtor may face denial of discharge of debts in bankruptcy, and still owe creditors.

• Lack of standing: Even if a debtor does not include property in Schedule B, that property is still technically considered part of the bankruptcy estate. If a debtor files a claim against a creditor after bankruptcy, a creditor may assert that the debtor lacks standing to sue on that property because it is still part of the bankruptcy estate.

• Judicial estoppel: If a debtor does not include an asset in the estate, then a court in a later proceeding between the debtor and the creditor may consider it as if the debtor admitted that they do not have any claims on that debt.

Contact Our Chicago, IL Creditor’s Rights Attorneys

If you are dealing with debtors who have filed for bankruptcy protection, you may be concerned about whether the debtor will omit assets from the bankruptcy filing and whether this can affect your ability to get paid. At Dimand Walinski Law Offices, P.C., our experienced bankruptcy attorneys understand the effect that bankruptcy can have on creditors. Contact our Chicago, IL creditor representation lawyers for a consultation today at 312-704-0771.