The Dangers of Facebook to Your Bankruptcy
If you’re reading this blog post the chances are good that you have a Facebook profile or account. If so, you’re not alone. Recent statistics reported by The Blog Herald indicate that there are now over 500 million Facebook users. Of those 500 million users, half of those users log in to their Facebook account every day. The average Facebook user has 130 friends and there are a staggering 30 billion pieces of content added each month. To fully understand that amount 30 billion looks like this when written out: 30,000,000,000.
So Why Does Facebook Matter to Your Bankruptcy?
Facebook is a window into your personal life. A bankruptcy Trustee, after filing bankruptcy, has the right and ability to look into that window.
When you file a bankruptcy you are required to disclose your assets and other important acts within certain time periods. If you fail to disclose the required information in your bankruptcy petition then you are committing a federal crime of perjury. You could face jail time and be fined large sums of money. Do I have your attention yet?
More and more bankruptcy Trustees are looking up debtors’ (people who file bankruptcy) social media accounts. It is so quick and easy to pull up information on social medias, it has become a logical part of the due diligence research that a Trustee’s office will complete.
Death Of A Bankruptcy Case Via Facebook
Let’s look at a common example. Husband and wife Donnie and Debra Debtors file a bankruptcy together. They fill out their bankruptcy petition and file it with the court. However, they chose not to list down some of their assets because they don’t want the courts to take it because they hope to give it to their children some day. Specifically, they don’t list down a 1957 Chevrolet Bel Air that has be restored and a whole life insurance policy with a substantial cash surrender value. Donnie and Debra show up to the creditors’ meeting and quickly realize they have some real problems.
Tom Trustee, who represents the people Donnie and Debra owe money to, has started paying a part time high school student to go online and after school and look up different debtors who have filed bankruptcy and see if they are showing assets that aren’t listed in their bankruptcy petition. Well, low and behold, the 16 year old high school student searching on Facebook has found some important information for the bankruptcy Trustee. Donnie and Debra have posted pictures on Facebook showing their newly restored 1957 Chevrolet Bel Air winning as “Best in Show” at a recent car show located in Charlotte, NC. In addition to that, Debra responded to one of her friend’s posts asking how to pay for college tuition by explaining that she and Donnie are withdrawing the cash surrender value from their whole life insurance policy to pay for their daughter’s freshman year in college.
Tom Trustee asks Donnie and Debra if they need to add anything else to their bankruptcy petition and they explain that it is accurate and complete. At that time, Tom Trustee begins to ask them about the assets not listed down in their bankruptcy petition, the car and whole life insurance policy. Stunned, Donnie and Debra first try to deny they have those assets but then the Trustee presents them with pictures printed off of their Facebook page. They eventually admit their failure to properly disclose assets.
Several weeks later Donnie and Debra are indicted and face federal charges of fraud and a fine of $150,000 by the federal government – money they don’t have because the Trustee seized both their “Best in Show” car and whole life insurance policy. Because Donnie and Debra didn’t tell their attorney about the assets they didn’t realize they could have protected both assets. The whole life insurance could have been fully protected because their children were the beneficiaries and the vehicle could have been exempted using a combination of their motor vehicle exemptions and “wild card” exemptions.
The Lessons To Be Learned
There are two important take-aways from this example. First, and most important, you should fully disclose your assets and be completely honest and forthcoming in your bankruptcy petition. The consequences of not doing so are not worth the perceived benefit. Second, tell your bankruptcy attorney about everything. Keep no secrets. If they would have discussed the concerns they had about their assets with their experienced bankruptcy attorney they would have known they could have protected their assets.
The Bottom Line: The purpose of this post is not to tell you to take hidden assets down but, instead, to encourage you to list the assets you have and discuss those assets with your bankruptcy attorney. Facebook and other social media sites are now used to confirm that you are being forthcoming within your bankruptcy petition.
What Is Abandonment In Bankruptcy?
Property that is surrendered or was not protected under the bankruptcy code exemptions is fair game for the bankruptcy Trustee. Once a debtor has filed bankruptcy, his estate becomes that of the bankruptcy court and the bankruptcy Trustee.
At that time, the Trustee determines if there is any value or potential value in any of the assets of a bankruptcy case. If the property proves to be worthless, with no beneficial value, or the value is not worth the hassle of selling the property, the Trustee will submit a motion to abandon the property. Once an asset is abandoned in bankruptcy, it is released from the protection of the bankruptcy automatic stay. At this point, the property may be sold, transferred, or used by the debtor or other parties of interest, such as the mortgage company. Abandonment can be automatic if a Final Decree is issued on a case which officially closes a bankruptcy (this is after the discharge is issued.) A final decree labels the property for abandonment because the case has been closed and the Trustee has issued a non-distribution of assets.
To better illustrate, lets take a look at a common example. A debtor surrenders a home in bankruptcy and must forfeit a piece of land that he was not able to protect with his exemptions. The Trustee reviews the estate and decides to hire a real estate agent. The real estate agent explains that due to the market’s condition, the land would take over a year to sell, but the house may sell in 6 months. The Trustee decides to put both on the market for 6 months. Debtor receives a discharge but not a Final Decree. The time passes and the Trustee has not even received an offer on the land or house. To cut his losses, he decides to file a Motion to Abandon on the land and notifies the creditors there are no assets to be disbursed. The debtor receives a Final Decree a month later. The house is considered abandoned by the receipt of the Final Decree and the land becomes the debtor’s once again. The mortgage company sets up foreclosing proceedings on the home and months later, the home forecloses and the debtor’s name is removed from the deed.
The bottom line is, when a Trustee abandons property they are notifying the bankruptcy court, creditors and the bankruptcy debtors that they no longer have an interest in the property.
Are My Tools Protected in A Bankruptcy?
Due to the recession our economy has faced, many small business owners find themselves sitting in our office discussing the possibility of filing for bankruptcy. Legitimately, one of their main questions is how to protect their assets. One of the major assets of most small business owners is their “tools”. Tools can range from hand tools of a construction worker to the painting supplies of a painter. So, can they take your tools?
The answer is not simple; this is where an attorney can be helpful. If you are a sole proprietor then the tools are seen as your personal property and protected as any other property you have. By default, an business is a sole proprietorship if it is owned by one person and has not been incorporated in one way or another. An example of a sole proprietor is Joe Blow’s Lawn Care; one person owns the company, owns the tools, works for himself, and files a self employment tax (Schedule C) on his taxes. The lawn mower, rakes, blower, hedgers, etc. all belong to Joe. If he decided to no longer run the company next week, the only difference would be that the tools would move from his truck to the garage. If Joe were to be sued, he would need to protect those tools as he would any other asset he has from seizure.
Now, if Joe had gone to the Secretary of State and registered his company, it’s a bit of a different story. If that were the case, Joe Blow’s Lawn Care, LLC owns the tools. They would be included in the balance sheet (what tells other people what your company is worth) as a business asset. The lawn mower, rakes, blower, hedgers, etc all belong to Joe Blow’s Lawn Care, LLC. If he decided to no longer run the company next week, the company still holds the assets until it is closed down with the Secretary of State (then in most cases ownership reverts back to the owner of the company). If Joe was to be sued and he was protecting his property, until he closed the company down, those tools belong to the company in which he owns, not him personally.
The bottom line is, you can protect your tools using the “tools of the trade” exemption in North Carolina. An experienced attorney would need to look at your unique situation to determine if using that exemption is proper or not. If you own a business, whether it is large or small, we strongly suggest that you discuss all of your assets and liabilities with your attorney. Businesses can be a tricky subject, whether owned directly by you or an entity you own, and protecting your assets are important to your success in a bankruptcy.
