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URL:  https://boards.fool.com/ive-always-wondered-cant-a-person-wait-until-28670142.aspx

Subject:  Re: I'm Drowning...advice on refinancing mortgag Date:  7/31/2010  11:28 AM
Author:  RedFi Number:  298709 of 312702

I've always wondered... can't a person wait until after he's revealed his accounts to the court, and then immediately run out and open a new account and transfer his money into it before all the other accounts get frozen up?

Someone could do this, but there would be records of any transfers, and a court could order a garnishment of the funds in the new account. The same thing would apply in a bankruptcy proceeding. When you provide the bankruptcy court with your list of assets, you declare that is true and complete. If the funds aren't there as the case proceeds, they would come after you for fraudulently concealing assets.

Here in Minnesota, once someone gets a judgment against an individual, they can ask the Court for an order for disclosure - which is a court order directing the debtor to provide complete and accurate information on a financial disclosure form. Basically, the court orders the judgment debtor to tell the judgment creditor what assets he or she has, so the judgment creditor can put a judgment lien on any real property or issue garnishment summons to employers or banks. If the judgment debtor fails to return the order for disclosure, the judgment creditor can ask the court to issue an order to show cause, which is an order directing the judgment debtor to come to court and explain why he or she should not be held in contempt of court for failing to complete the court-ordered financial disclosure form. In addition, the court can issue an order to show cause if it believes that the information on the financial disclosure form is incomplete or inaccurate.

I was recently involved in a case where the judgment debtor failed to complete the order for financial disclosure and the court issued an order to show cause. At the hearing on that order, the debtor still refused to complete the financial disclosure form, and so he was taken into custody for contempt of court. After cooling his heels in jail for a few hours, he agreed to complete the disclosure form. The judge made him state on the record and under oath that everything was completely accurate on the form. The judgment creditor then proceeded to garnish the listed accounts and subpoena the banks for records of transactions in and out of these accounts. Every time they found a deposit into one of these accounts they traced it to see if it came from an account undisclosed by the judgment debtor. Ultimately, the judgment creditor traced a deposit to an undisclosed account that held $75,000 that was liquidated into a cashier's check the day after the hearing on the order to show cause. The check had never been drawn on, so it was still out there. The Court immediately issued a bench warrant requiring the arrest and detention of the judgment debtor until the physical check was provided to the Court. In addition, the Court issued an order to the issuing bank to cancel the check, which basically reversed the transaction and put the funds back into the account.

All told the judgment creditor spent about $15,000 in attorney's fees just trying to track down the judgment debtor's assets. (The Court ordered the judgment debtor to pay these attorney's fees because they were caused by his attempts to avoid garnishment.) Ultimately, everyone got paid, and I don't believe the debtor is going to be subject to any further criminal sanction. Had he done something similar in Bankruptcy Court, he might very well have been prosecuted for fraudulent concealment.

Courts do not take the fraudulent concealment of assets lightly. I know that one of the 'real' housewives of NJ is in bankruptcy right now and the trustee has raised the specter of fraudulent concealment. We had a local case involving a formerly high-flying car dealer who was found guilty of concealing assets and other frauds upon the bankruptcy court - accordingly, the court made all of his many hundreds of millions in debts non-dischargeable in bankruptcy. Basically, if you lie to the bankruptcy court, it is free to say "no discharge for you!" In addition, you could be subject to criminal charges for bankruptcy fraud, which is what has happened to this car dealer and his girlfriend, who is alleged to have helped him conceal assets.

Unless you have always hidden your funds under the mattress, you'd be hard-pressed to successfully hide assets from a judgment creditor or from a bankruptcy trustee. I guess you could technically hide assets - e.g. clear out accounts into cash or gift cards, and the money could be concealed, but the courts would learn of the withdrawals, which would be sufficient to get you for fraudulent transfer.
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