The Dangers of Facebook to Your Bankruptcy

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Laptop KeyboardIf 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.

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Can I Collect Rent If I’m Surrendering Rental Property in Bankruptcy?

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Person Writing on LaptopRental properties can be a great source of income until a renter moves without notice or fails to pay or that rental income starts to be used for your personal household expenses.  As situations arise, many people are finding it necessary to file bankruptcy and surrender the extra properties and the mortgages that come along with those properties.  When you surrender a rental property in bankruptcy, you are in essence surrendering your interests and rights to the property.  Therefore, you are not eligible to collect rent while in bankruptcy.

Additionally, the bankruptcy Trustee sees this as unprotected funds and will request the received funds to go to the creditors.  Furthermore, tenants are always informed if a house is being surrendered in bankruptcy.  Your tenants may be well aware of their rights and have the responsibility to report a debtor who tries to collect rental income while in bankruptcy.

Once you have been discharged of your debts and have received a final decree that officially closes your case, you may begin to receive rental income.  However, approach this scenario with caution.  Even though you have completed your bankruptcy the Trustee has the ability to reopen your case and require you to pay him all the funds you had received after your discharge.  So, you definitely need to weigh your pros and cons.  If this situation sits in your future horizon, you should discuss this with your bankruptcy attorney prior to your discharge.  Moreover, if the tenants are aware of the circumstances, they may not even be willing to pay rent while still living in the home.  Since the property is still in your name until the bank forecloses, you may engage in the eviction process.  Or you could insist on the tenants paying enough to cover homeowners insurance or property taxes.  If there is a homeowners’ association linked to the home, whoever lives in the property should stay current with the HOA.

We typically tell our clients to stop collecting rent when they decide to file for bankruptcy. Instead, the tenants should pay rent to the bankruptcy Trustee or stop paying rent all together if they no longer wish to stay in the house. This ensures the bankruptcy client is not doing anything to jeopardize the success of their bankruptcy.

Do Credit Repair Services (After Bankruptcy) Actually Work?

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Credit Card Companies May File a Proof of ClaimIn this age of information it can be tough to discern which tasks we are capable of handling ourselves and which tasks we should leave to the professionals.  As bankruptcy lawyers we have clients who contact us on a regular basis and ask if they should hire a credit repair company to rebuild their credit. In short, we don’t think so.

In the case of repairing your credit after bankruptcy, an individual is perfectly capable of resurrecting his or her own credit score.  Research is all what it comes down to and having the time to fill out forms and make certain phone calls.  Six months after filing, we suggest pulling your credit report from all three credit bureaus: Equifax, Experian and TransUnion (you can pull your credit report for free once a year by going here).  You should examine these reports to make sure all debts listed in your petition have been discharged through your bankruptcy.  If a credit or collection agency has failed to report correctly, it will be up to you to be your own advocate.  First, you should send, in writing, a letter to the creditor stating when you filed bankruptcy, your case number, when you were discharged from all your debt and a request that they correct the entry with all three bureaus.  Next, go to the individual credit bureaus websites and determine the process of filing a dispute against the creditor that is not reporting correctly.  If the battle continues and you need a legal hand, you should contact your bankruptcy attorney: they should be able to fax over the necessary information to clear up any matter.

If a creditor still fails to accurately report the discharge of your debts to the credit bureaus then they could be sanctioned for violating federal laws. You could also report them to the Federal Trade Commission.

As in everything, it is important to document as you communicate with these companies.  Although they are required to document as well, it is nice to have your own personal reference, especially if you are dealing with a difficult or large company.  Make sure to stand your ground and know your rights!