Sample Informed Consent Letter
Dear Client,
Your bankruptcy petition, statement of affairs, and schedules are now
ready for signing. Please call our office and make an appointment to
come in, review, and sign those documents.
We have prepared your bankruptcy documents carefully, and to the best
of our knowledge they are accurate. However, the accuracy of these
documents depends upon the correctness of the information you have
provided us, and we occasionally make errors of our own. You are
ultimately responsible for the accuracy of your bankruptcy documents,
both practically and in the eyes of the law, because you are signing all
these papers under penalty of perjury. It is essential that you review
your papers carefully to be sure that they are correct, that they fully
disclose all of your assets and liabilities, and that all questions are
answered completely and accurately. Inadvertent errors do occur, and can
be corrected without penalty, if they are truly inadvertent. Deliberate
or reckless omissions or deceptions are another matter; they may
constitute federal bankruptcy crimes, subject to investigation by the
FBI and punishable under federal law.
The date of filing these documents can have important effects on you
in the future. Certain kinds of debts are eliminated in bankruptcy only
if the debt is old enough to qualify for elimination; the elimination of
debts by bankruptcy is called a "discharge." Two important kinds of debt
which are discharged only if they are old enough are student loans and
income taxes.
Generally speaking, income taxes are dischargeable if the return was
filed on time, and was last due more than three years before filing. If
you had an extension of time to file your return for a year on which
taxes are still unpaid, that debt would not become dischargeable until
three years after the extension expired, even if you filed the return
earlier.
Because time periods are very important with regard to taxes and
because we rely on you to provide us with the facts that determine the
dischargeability of tax debts, we ask you to pay particular attention to
the accuracy of the information affecting the dischargeability of those
debts. Of course, if you do not expect a discharge of those debts, you
need not be concerned about these issues.
Misconduct on your part, such as deliberately omitting assets from
your bankruptcy papers, selling assets in which the bankruptcy trustee
has an interest, selling mortgaged property without turning proceeds
over to the secured creditor, or failing to comply with other
requirements of the Bankruptcy Code, may result in an objection to
discharge of your debts. The trustee or any creditor may object to
discharge.
"Discharge of debts" is the declaration of the bankruptcy court that
you no longer personally owe the debts you had when your bankruptcy was
filed. Obtaining this discharge is the purpose of your bankruptcy
proceeding. The discharge can be denied in cases of serious misconduct,
leaving you owing all the debts you had when you started. This is a
severe punishment, and not one to be risked lightly.
The filing of your bankruptcy petition gives the trustee a claim
against all your assets, effective on the filing date. This claim is
subject to the rights of secured creditors, and subject to your right to
exempt property. The trustee has the duty to review the claims of
secured creditors, and your claim of exemptions, to determine whether
assets exist from which unsecured creditors could receive a payment. The
trustee may object to a secured party's claimed security interest, or to
your claim of exemptions. The trustee's initial position on these
matters usually becomes clear at the first meeting of creditors, held
about one month after your petition is filed. During the time between
the filing and the hearing, do not sell or mortgage anything you own,
except for perishable items such as milk. After the hearing, I will
advise you whether the trustee is likely to claim an interest in any of
your assets. If the trustee is claiming an interest, I will advise you
how to proceed.
Until your exemptions are approved, you should treat all pre-petition
assets in your hands as the trustee's property. You cannot sell, pledge,
or do anything else with these assets until after your exemptions are
approved (as to exempt property) or until the assets are abandoned, as
to nonexempt property. Any objection to exemptions is generally apparent
at the first meeting, and I will advise you concerning those if they
occur.
As a rule, all your post-petition earnings, and assets you obtain
after your petition is filed, are free from any claim of the trustee or
your pre-bankruptcy creditors, unless they are the result of contracts
made before bankruptcy, or money owed to you when you filed. There are
exceptions to this rule. If, within 180 days after your petition is
filed, you inherit property, receive a property settlement payment from
a divorce, receive proceeds of a life insurance policy, or receive
benefits under a death benefit plan, those may be subject to the
trustee's claims.
If you are now aware of a possibility that one of these events may
happen in the next six months, please let me know so that we can plan
accordingly. If one of these things happens within 180 days after your
petition is filed, you have 10 days to notify the Bankruptcy Court and
the trustee. You can handle that responsibility by consulting with us
and having us file the necessary papers with the court, but you are
ultimately responsible for the performance of this duty.
If you are filing a Chapter 7 case in which the trustee will
administer assets for the benefit of unsecured creditors, the Tax Code
requires that you file a short-year tax return. The short-year filing
covers the period between the end of your last tax year and the date
your bankruptcy petition is filed. If this filing results in a tax
liability, we must file a claim on behalf of the IRS so that the taxes
will be paid first out of the trustee's funds. In our experience, this
procedure works better on paper than it does in practice. Bankruptcy
administration can be slow in asset cases, and the distribution to pay
the IRS claim will come long after the tax return due date. The IRS
assesses penalties and interest on the balance due until the IRS
receives the funds; the bankruptcy trustee, however, will not pay the
penalties or interest, which ultimately will be your responsibility.
You also are required, of course, to file a return for the period
between the petition date and your normal year-end date. Preparation of
that return will require special care, because the trustee has the use
of your petition-date tax attributes (depreciation, ITC carryovers, net
operating losses, and so on) until the bankruptcy case is closed. Your
tax preparer must be alert to any use of tax attributes by the trustee
if you have regained the use of those tax attributes for the second
return; if they are still in the trustee's hands at that time, and the
trustee does not use all of them, it may be advantageous to file an
amended return after the bankruptcy case is closed, in order to minimize
your tax liabilities.
As I explained during our office conference, the law recognizes the
right of bankruptcy debtors to convert nonexempt assets to exempt assets
prior to filing bankruptcy, but it also contains provisions for denying
exemptions where fraud is involved. Fraud is not just converting
nonexempt assets to exempt, nor is failure to volunteer information
ordinarily fraud. The court will consider as signs of fraud: use of
credit to acquire exempt assets, conversion to exempt assets after entry
of a large judgment, deception or sharp dealing, and conversions that
create insolvency. Tricking creditors into delaying their efforts to
collect debts while you secretly convert assets would be considered
sharp dealing. There are other forms of deception and concealment that
would probably result in denial of exemptions or denial of discharge; be
sure to consult us regarding any statements to creditors concerning this
process or your intentions. It is especially important that you avoid
misrepresenting your intentions to a creditor in any way.
Aggressive pre-bankruptcy asset conversion is likely to cause
creditors to object to your claim of exemptions. In addition, creditors
may object to the discharge of your indebtedness. Our chances of having
the court deny the objections of creditors will be enhanced by
forthright conduct toward those creditors. The risk of an unfavorable
ruling, however, is always present.
The risk that the court would deny exemptions is greater, in my
opinion, than the risk of a denial of discharge. The court might be
persuaded to deny the exemptions in total, but would more likely be
persuaded, if persuaded to do anything, to deny exemptions to the extent
that they were acquired on the eve of bankruptcy.
I believe that you have a good chance of winning on all issues, but
you must be aware of the risks as well as the benefits of the proposed
course of action.
Please be sure to let me know if you have questions regarding the
contents of this letter.
Sincerely yours,
Attorney
Wisconsin
Lawyer
