One of the problems I have with potential bankruptcy clients is when they tell me about an asset they own. The title comes from a potential client who wanted to declare bankruptcy because his business was failing. Everything went smoothly until he revealed that he had $80,000 worth of tools for his business that were paid for in full. When I told him that he would have to list the tools on the bankruptcy petition and that he would lose most of them he asked me- why would he have to list them on the bankruptcy petition? After all, the Bankruptcy Court would never find out he owned them. After I explained that I knew and I would have to list them he left.

I suspect that he went to another bankruptcy attorney and never revealed that he owned the tools. He probably figured he was in the clear. However, when I went to a recent Western New York Bankruptcy Conference I discovered that this is not necessarily true. The 341 confirmation meetings for bankruptcy are not private- they are held with all of the debtors in the same room. The Judges stated that if you are a bankruptcy attorney, and see a debtor committing perjury during a 341 meeting, then you must reveal the perjury. So if you see the debtor who told you he owned $80,00 worth of tools claiming he owns no assets at a 341 meeting, you must reveal the perjury. What about client confidentiality? The judges stated that the obligation to reveal the perjury trumps the client confidentiality.

Of course, there are dilemmas involved in revealing a perjury. What if the debtor sold the tools and spent the money in a way acceptable to the Bankruptcy Court? What if the tools were uninsured and were stolen? Usually several months have passed since the time you have seen the debtor so you may not be 100% certain the debtor still owns them. However, you have the obligation to reveal perjury when you see it.

I think that it is important when the client first comes to see you to explain that you never know how a fact may be revealed and explain the penalties for perjury in a federal court. There have been debtors who have "come clean" at a 341 meeting and revealed why they left an asset off of a bankruptcy petition. However, the Western New York Bankruptcy Court is not lenient on these debtors because there is no rule that perjury is acceptable if you reveal it at a 341 meeting.