Bankruptcy is meant to give the honest debtor a fresh start in life. However many bankruptcy filers use the system to conceal their assets from creditors or to fraudulently discharge debts which they are not legally entitled to discharge. Bankruptcy fraud is a federal offense. You will be committing a bankruptcy fraud if:
- you falsely filed for bankruptcy
- you attempt to conceal your assets while filing for bankruptcy
- you file multiple claims
- you launched petition mills
The common types of bankruptcy frauds are concealment of assets and multiple filings. Another common bankruptcy fraud is the fraudulent transfer of assets or money just before bankruptcy.
Concealment of Assets
You will be guilty of concealment of assets if you’ve purposely avoided listing all of your assets when you file for bankruptcy in an attempt to prevent the liquidation of those assets.
Many persons in an attempt to conceal assets and money from the trustee often transfer them just before the bankruptcy filing. Such transfers can be cancelled by the trustee and the assets or amounts can be made available for liquidation.
Every state has its own residency requirements for bankruptcy filing. In some cases, you may be eligible to file in more than one state but you cannot file in all the states. You can file for bankruptcy only in one state. If you file in more than one state at the same time using your real name and information or under a false name using false information, you will be committing bankruptcy fraud.
This is a new scheme floated by fraudulent operators who target tenants facing eviction. These operators often list their services in local newspapers and target tenants who are unable to pay the rent and facing eviction. They promise the tenants that they will be able to remain in the home. These fraudulent operators often file bankruptcy petitions in the name of the tenants without the knowledge of the tenant. Such filings amount to bankruptcy fraud.
Other Bankruptcy Frauds
Bankruptcy discharges the debts of the filer. If you file as an individual filer, only your debts will be discharged. However, if you are married, you and your spouse can file a joint petition and discharge your joint as well as individual debts. If you file an individual petition and you include the individual debts of your spouse or of any other person, then you will be committing a fraud. Similarly if you and your spouse file a joint petition, you cannot include the debts of others including other family members. Inclusion of the debts of other family members in a joint bankruptcy petition filed by a married couple can amount to bankruptcy fraud.
Consequences of Bankruptcy Fraud
First of all if the fraud is discovered, your petition will be dismissed. Often when a bankruptcy petition is dismissed for fraud, there are restrictions on future filings. However there is more. Bankruptcy fraud is an offense and you can be tried for bankruptcy fraud in a court of law. To be convicted of bankruptcy fraud, the prosecution must prove that your “fraudulent” act was done knowingly and with an intention to deceive the bankruptcy court.
If convicted for bankruptcy fraud you can be ordered to pay a fine not exceeding $250,000 and/or be sent to prison for a term not exceeding 5 years. Bankruptcy fraud is a felony offense. It will remain on your record and can play an important role in any subsequent criminal proceedings against you. Many states impose restrictions on persons convicted of a felony offense.
Preventing Bankruptcy Fraud
When you file for bankruptcy, you should file only in one state and you should provide all the necessary information about yourself and your finances and assets. Never conceal anything from the bankruptcy court. You should include only those debts which you are liable for. Do not include debts belonging to others. Avoid any transfer of assets or big amounts just before the filing.