How to Identify and Avoid Bankruptcy Fraud

Filing for bankruptcy is becoming more common these days.  One of the main reasons is because the moment bankruptcy is filed any requests from creditors will be halted while the process is ongoing.  They cannot try to sue you or take any of your property to settle any debts you might have with them.  The creditors will have to go to the court in which the petitioner filed for bankruptcy where a judge will determine how the debts will be settled.  During the bankruptcy process the petitioner will be asked to list all of their debts and all of their assets.  There is the possibility that that some property will be liquidated to satisfy your debts.  Should the filer attempt to conceal any assets or improperly influence the proceeding in any manner, they will have committed bankruptcy fraud or a bankruptcy criminal crime, which is a federal offense.

Consequences of Bankruptcy Fraud
It is possible to punish bankruptcy fraud with either criminal or civil penalties.  If the court appointed trustee that is in charge of the filer’s case believes that fraud has been committed, then they can request that a civil penalty be imposed on the filer, which usually does not involve jail time.  However, if the fraud that has been committed is severe, then the trustee could pass the case onto federal prosecutors who can impose criminal punishment such as jail time.

Criminal and Civil Penalties
Civil penalties typically include the forfeit if the filers discharge rights. This means that your debts will not be discharged at the end of the filer’s case which in turn means that the creditors will be able to sue the debtor and take property to settle debts or attempt to collect their debts by various means.  There can also be a loss of exemptions meaning that assets that would normally be exempt from collection from creditors will no longer be protected.  If the filer is found guilty of bankruptcy fraud and is convicted, then there is the possibility of getting up to five years in prison. Five years is the maximum sentence the court can impose.  However if there is more than one offense, it can be up to five years per offense.  It is also possible to get probation for committing bankruptcy fraud, which usually involves keeping out of any trouble and maybe meeting with a probation officer a couple of times; a probation sentence can last up three years, although longer sentences are possible.  It is also possible to be fined for committing fraud; the maximum that a court can impose is $250,000 per offense.  Fines can be imposed by themselves or on top of other criminal penalties.

Hiding Assets
The most common form of bankruptcy fraud is when the person who filed for bankruptcy tries to hide assets or tries to mislead the court as to what property the filer actually has.  When the filer initially files for bankruptcy the court will ask for an inventory of all your assets called a bankruptcy estate.  This is done so the trustee can determine how much you are able to pay the creditors. The common purpose for some people deciding to hide their assets is so that they don’t have to give certain property up or so they can make a smaller payment.

Avoiding Foreclosure Scams
Typically, if a person is facing foreclosure on their house, they will try to do everything they can to make sure their family and themselves continue to have a home.  There are some companies that are aware of this and decide to try to make some money. They tell the homeowner that they can remove the foreclosure on their home if they pay a certain amount of money.  The fraud that is committed here is that after the company has been paid, they will file for bankruptcy in the name of the homeowner, sometimes without permission or even informing the homeowner. It is true that filing for bankruptcy will put a hold on the foreclosure, but one the court is aware that the homeowner was not a knowing member of the filing, the case will be dismissed and the foreclosure will resume.

Bribes
Attempting to bribe a creditor, the trustee, or anyone involved in the bankruptcy case can be considered bankruptcy fraud.  A bribe may occur when the filer attempts to convince a creditor to not file a claim against them when bankruptcy is filed by offering them some kind of monetary payment.

Giving False Information
Committing bankruptcy fraud is not an accident. Should the filer forget to list a gift that was received but never used, for example an old car from a family member.  If that gift was kept in storage for a long time and the filer simply forgot to list it then it is not fraud.  However, if the filer intentionally put the car into storage and knowingly forgot to list it, that is fraud.

Fraud In General
Bankruptcy fraud can be a broad range of things, but if you are unsure whether something is considered fraudulent or not, remember that if what you are doing can be considered taking advantage of the bankruptcy process in any way, odds are that it can be considered fraud. Some examples are, using your credit card to buy items with the sole intention of filing for bankruptcy and not paying off your credit card, getting rid of important documents, filing for bankruptcy in separate states at the same time, or giving false reports to anyone in the court.  It is good to know that creditors can also commit fraud by giving false reports or making false claims about the debtor.