As we've discussed previously, we often hear from financial advisors looking to clean up their Form U4. Often these advisors are facing a criminal disclosure or have a U4 that reports an old criminal case from many years ago, perhaps from when they were very young. But increasingly, we receive calls from advisors who have a U4 disclosure listing a bankruptcy or a compromise with creditors.
There is no doubt that our country has faced economic and financial difficulties in recent years. Many Americans have struggled to make ends meet, some even seeing no other option but to declare bankruptcy. We sometimes hear from financial advisors who have faced this very situation and are now concerned about how a bankruptcy disclosure will affect their Form U4, and if there is any way to remove it.
Do I have to disclose a bankruptcy on my Form U4?
The most important thing to note here is that you are required to disclose a bankruptcy or a compromise with creditors on your Form U4. Like all other disclosure requirements, you must make this disclosure honestly and timely or you could face sanctions from FINRA for violating the disclosure obligations. Do not try to lie or hide anything—answer the questions truthfully and seek counsel if you have concerns. For more information on Form U4 disclosures, request our free Guide to a Cleaner Form U4.
Is it possible to remove a bankruptcy disclosure?
While you are required to report a bankruptcy on your Form U4, there will be an opportunity to remove the disclosure at some point, assuming that you do not repeatedly file for bankruptcy or are the subject of involuntary bankruptcy proceeding cases. You will notice that the vast majority of the U4 disclosure questions are not time-bound, meaning that you must disclose an event no matter how long ago it happened. For example, as we discussed in this blog, you must disclose a criminal charge even if it happened 30 years ago while you were 18 and in high school. However, the bankruptcy disclosure question does include a time frame, and limits the question to the past 10 years. While you are still required to disclose, this time limit is your avenue to removing the disclosure. Once 10 years have passed from the date of the bankruptcy, you can amend your Form U4 and answer the question of whether you have declared bankruptcy within the past ten years with a ‘no' answer.
Can anyone see a bankruptcy disclosure once it is amended?
When you amend your Form U4 once the bankruptcy is more than ten years old, the disclosure will go into archive status and remain in the CRD or IARD system. This means that while the disclosure will not be available to the general public on your Investor.gov or Brokercheck.com reports, it can still be accessed by your firm and regulators, as well as potential employers if you give them authority to run a full CRD or IARD background check.
Is there any other way to remove a bankruptcy disclosure from my Form U4?
This ten-year clause is typically the only way to remove a bankruptcy or compromise from your Form U4. We have seen cases where the disclosure was made in error and could potentially be removed, but these are rare. If you think your disclosure may fall into this category, give us a call at (678) 344-5342 to discuss your situation.
Contact The Beck Law Firm, LLC if you have a bankruptcy or compromise disclosure and need advice. For more information on the Form U4, you can also download our free Guide to a Cleaner Form U4, Financial Advisor's Guide to Regulatory Investigations, and Financial Advisor's Guide to Arrests, Criminal Disclosures, and Related Form U4 Issues.
Bob J. Reply
Posted Oct 22, 2021 at 04:53:02
I have a current financial disclosure for a compromise with a debtor. I paid the debt in full, can I have the event amended and archived, removing the disclosure??
Joel Beck Reply
Posted Oct 22, 2021 at 07:52:16
Hi Bob. Not sure the details of your situation and we can’t really hash that out online. If the disclosure was required, you may be stuck with it for a period of ten years from the compromise, and can then amend the U4 due to the passage of time (that question has a time limit on it whereas other U4 questions typically ask if you have “ever” done something). If the disclosure was not required, you may be able to get it archived or removed. If you’d like, you can contact us to schedule a U4 consultation to discuss your matter. We do charge for those consults as we focus on your specific needs and work to provide practical guidance. All the best to you.
Tamara Ellis Reply
Posted Oct 27, 2021 at 10:52:39
Can you change jobs with a bankruptcy on your U4?
Tom C Reply
Posted May 25, 2022 at 09:59:45
I was in a payment plan with the IRS back in 2011-2012. They filed a lien on me anyway (maybe because the amount was over $25K). It was actually $32K because of penalties and interest). It was not reported on my U4 or U5 as I was terminated in Novemeber of 2012. I joined another firm in Feb of 2013, and during the mandatory Credit Check they revealed the Lien – and told me it needed to be settled before I could get affiliated with them (old firm was a W-2 employee, new firm a 1099 Independent, if it matters). I paid it off ahead of the payment plan and the lien was removed prior to joining the new firm. 10 months later I discover the new firm has added the former lien was added (but archived) to my U4. They refuse now, 9 years later, to expunge this from my archived U4. Can I get this done. I believe it a vast over-reach and in bad faith that this was done when I believe I was not employed as a registered rep at the time it was discovered, and removed.
Joel Beck Reply
Posted May 26, 2022 at 07:23:09
Tom – once a person discloses a lien on a U4, there is not, to my knowledge, a way to get it fully expunged from the CRD or IARD systems. Once the lien is satisfied or withdrawn and you can answer “No” to the relevant U4 question as to whether you have an unsatisfied lien or judgment against you, that disclosure moves from “current” status to “archive” status and it is no longer publicly available on BrokerCheck or Investor.gov. If you want to get into specifics about your situation, I recommend contacting my office to chat.
Joel Beck Reply
Posted May 26, 2022 at 07:24:38
Assuming that there is a firm that you wants to become registered with it, then yes, you can move from one broker-dealer to another with a bankruptcy in your background and disclosed on the U4. Of course, you would still have to register with the applicable states and meet all state licensing requirements.
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