Individuals, who file bankruptcy, will file for either Chapter 7 or Chapter 13 bankruptcy.  The type of bankruptcy you file will depend on several factors, including your income.  The bankruptcy process starts with a thorough discussion with your bankruptcy attorney before you file your application.  Providing an accurate accounting of your income to your bankruptcy attorney is an extremely important component in this process.  Last week, former Louisiana congressman, William Jefferson, learned this lesson the hard way.  By the time he was convicted of federal corruption charges including soliciting bribes and money laundering, Jefferson racked up legal bills in excess of $5 million.  His total debt obligation is expected to be around $10 million.  The Louisiana state Supreme Court has suspended his license, and as such, it is unlikely that he will have the funds anytime soon to satisfy the ballooning debt.  Jefferson filed for Chapter 7 bankruptcy protection.  However, the procedure for qualifying for Chapter 7 became more stringent in 2005.  Ironically, the change to make filing for Chapter 7 more difficult was supported by Jefferson when he was still a congressman.  A bankruptcy judge has since ruled that because of Jefferson’s income, he will be subject to the more stringent standards, which includes his income over the next three years being earmarked for debt repayment.

The news is ironic on several levels.  One would think after incurring convictions for money laundering and corruption, Jefferson would feel a bit more compelled to dot his “i’s” and cross his “t’s”.  For some reason, he slipped up in providing good information to his attorney.  Probably the paramount lesson to be learning from Jefferson, other that avoiding corrupt practices, is to give your bankruptcy good information.  The quality of their advice to guide you through the bankruptcy process will only be as useful to you as the quality of the information that you provide.  The sanctions for providing filing false or misleading information can be extremely critical to your financial health.  A bankruptcy attorney will not be happy once he finds out that you attempted to manipulate the bankruptcy process.  In order to avoid complications with your bankruptcy filing, disclose every source of income to your bankruptcy attorney so they can correctly determine which type of bankruptcy you qualify for through the means test.   If you are not sure whether or not an item qualifies as income or a loan, provide that information as well to your attorney out of an abundance of caution.  A good bankruptcy attorney can help you make your filing as smooth as possible.  However, the eventual success of your bankruptcy starts with gathering good information.  So take the time to plan for a successful bankruptcy.