When filing for Bankruptcy protection, it is critical that you disclose every asset, even those with little or no value at the time of the bankruptcy.
A bankruptcy Trustee can reopen your case if the Trustee learns that you failed to disclose an asset. What happens to the asset after the bankruptcy Estate is reopened is generally up to the Trustee. In a recent case before the Sixth Circuit Court of Appeals, the panel upheld a Trustee’s decision to make the Abandonment of stock in a closely-held corporation retroactive to the filing of a bankruptcy Petition. The Trustee determined that the stock was worthless at the time of the bankruptcy and would not have been sold to cover claims by secured creditors. Seven years later, however, the stock gained considerable value prompting the Trustee to reopen the estate and send notices to secured creditors. Fortunately for the Debtor, the Trustee allowed him to contribute funds to the estate to cover the creditors’ claims and administrative costs in exchange for retaining the stock which was the subject of a legal battle with the remaining shareholder in the closely-held corporation.
The Court of Appeals, deferred to the Trustee’s decision and likely would have done so had the Trustee decided to sell the stock to reimburse secured creditors. This could have been avoided if the debtor disclosed the stock at the time of the initial bankruptcy filing. A determination by the Trustee that the stock was worthless at the time of the initial bankruptcy filing would have allowed the debtor to retain the stock and any future value without it becoming an asset to the bankruptcy estate. In this case, the failure to disclose the stock cost the debtor approximately $20,000.00. If more secured creditors had filed claims, the cost could have been significantly greater all because of an oversight in disclosing an asset, albeit a worthless asset, during the initial bankruptcy filings.