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In bankruptcy, debtors hide assets and pay the price

When Gary K. Parker of Clearwater declared bankruptcy a few years back, he listed his seemingly meager assets.

A black couch valued at $100. A mirror, $10. A broken clock, $20. In all, a paltry $990 worth of stuff.

Except it wasn't quite all.

What Parker didn't disclose on his bankruptcy petition was an account with $35,580. In September he pleaded guilty to knowingly making false statements, a felony that could send him to federal prison for five years when he is sentenced in April.

Bankruptcy judges hope the case sends a strong signal to others who try to hide assets.

"There's no way to keep people honest, absent this kind of message or deterrent,'' says Judge Catherine Peek McEwen of the U.S. Bankruptcy Court in Tampa. "The system can't afford to send a private investigator out to dig up whether someone is telling the truth.''

Compared with other federal crimes like terrorism, kidnapping and counterfeiting, bankruptcy-related crimes have long ranked low on prosecutors' priority lists. As of early last year, criminal charges had been filed in just 24 of the 1,611 cases referred for prosecution nationwide in 2009.

But as the sputtering economy drove a record number of Tampa Bay residents into bankruptcy in 2010, many of them undoubtedly tried to hang on to more assets than they were legally entitled to.

"They all say it's a cubic zirconia, they never say it's a diamond,'' notes Traci K. Stevenson, a Chapter 7 bankruptcy trustee in Pinellas County. "Or I'll say, 'Do you have any diamonds?' and they'll say, 'Yeah, but they're old.' "

Chapter 7 trustees are the court-appointed officials who administer bankruptcy estates, liquidate assets and distribute the proceeds among creditors.

Debtors must meet with a trustee, who questions them under oath about their income and assets.

Are most debtors completely forthcoming?

"No,'' Stevenson says.

After 19 years she can spot the tell-tale signs. A nervous tic of the eye. A slight hesitancy in answering. Or blubbering on about the circumstances that drove them to bankruptcy.

"I don't want to know that you lost your job and that's why you filed,'' Stevenson says. "I want to know about your assets.''

In Florida, debtors who keep their homes can retain just $1,000 worth of clothing, furniture and other personal property. Those giving up their homes can keep an additional $4,000 of personal property.

Either way that's not a lot. So debtors tend to understate the value of their property, which they list in the bankruptcy petition.

"I look at the value of the house,'' Stevenson says, ''and the next thing I want to know is the square footage. If you say you have $375 of furniture in a 3,000 square foot house I'm going to send out an appraiser.''

Trustees also carefully examine the list of creditors: If a debtor owes $10,000 to a high-end furniture store like Robb & Stucky, it's a good bet the Italian leather couch is worth more than $75.

Stevenson remembers one couple who lived in a waterfront home on Treasure Island. But because they planned to give up the house, she didn't press them too hard about the value of their personal property.

"The next day in the St. Pete Times, there they were in the food section because they had a personal chef. You could see the granite countertops. I said, 'Okay, let's send out an appraiser and re-evaluate everything.' ''

Debtors trying to conceal assets are sometimes exposed by what bankruptcy officials call the "ex factor" — ex-spouses or ex-employees.

Consider the debtor who failed to disclose several pieces of sports memorabilia, including a jersey signed by former Tampa Bay Buccaneer Mike Alstott and worth $300 or so.

"The trustee eventually learned about it because a disgruntled former employee came forward with information that the items were in the person's office, not at his home,'' says McEwen, the judge.

"He was not charged with a crime but he did lose his discharge,'' meaning he was not relieved of his debts.

In another case, a woman blew the whistle when she learned that her ex-husband still had the $400,000 boat that her parents had helped pay for.

She told Stevenson, who found the boat (with him living on it) and sold it.

Trustees aren't required to advertise assets they plan to sell although they do put sale notices in the public court file. Stevenson typically sells through auction houses, on Craigslist or on websites like bkassets.com.

Among the items recently featured on the site: a men's 18-karat gold Rolex watch, with a starting bid of $850.

Although relatively few people have been charged with bankruptcy-related crimes, that could change as the result of increased cooperation among prosecutors, the FBI, Secret Service and other federal agencies.

Robert O'Neill, the new U.S. attorney for Florida's Middle District, "has made white collar crime his top priority and bankruptcy offenses are part of our criminal effort,'' says Assistant U.S. Attorney Laurel Moore Lee. "We really want people who are availing themselves of the bankruptcy courts to be aware those are very serious proceedings and that the consequences of committing a fraud on the court are very significant.''

Sometimes, though, being honest with the bankruptcy court can have consequences, too.

In 2006, authorities say, Richard Likane of Tampa got a mortgage after telling the lender he was making $12,324 a month as manager of an Italian restaurant.

But tax returns submitted in his 2008 bankruptcy case correctly stated that the only income he had in 2006 was $44.

After the FBI investigated those and other discrepancies between mortgage applications and Likane's bankruptcy filing, he was indicted last year on a charge of mail fraud affecting a financial institution — and faces up to 30 years in prison.

Susan Taylor Martin can be contacted at susan@sptimes.

In bankruptcy, debtors hide assets and pay the price 02/15/11 [Last modified: Tuesday, February 15, 2011 9:45pm]
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