Bankruptcy Fraud is an Easier Mistake Than You Might Think

In tough economic times, bankruptcy may be the only option for those struggling with unemployment and rising debt. But bankruptcy can be a demanding process and full of potential pitfalls and mistakes. In fact, those who do not proceed carefully could face federal bankruptcy fraud charges and spend up to five years in prison with a fine as high as $250,000.

The thought of a clean financial slate can be so alluring that some people are tempted to go beyond the bounds of bankruptcy laws to get out from under their creditors. There are four main ways a person can commit bankruptcy fraud:

  • Concealing assets and amassing debt
  • Submitting false or incomplete forms
  • Filing multiple bankruptcy petitions
  • Attempting to bribe the court-appointed trustee

Concealing Assets and Amassing Debt

Almost 70 percent of bankruptcy fraud cases involve a filer trying to hide or give away assets to prevent them from being liquidated during a Chapter 7 sell off. Some people will gift assets or "pay off" debts to family members or transfer assets to a small business to disclaim them. Others max out credit cards, take out payday loans or assume a second mortgage.

Submitting False or Incomplete Forms

Everyone makes mistakes; even courts recognize that and can look past unintentional errors. However, intentional misstatements and even consistent mistakes that suggest an "indifference to the truth" can lead to dismissal of the action and even criminal charges.

Bankruptcy forms require a listing of all the filer's income, debts and assets, even assets (like inheritance, a pension or retirement) that he or she anticipates receiving. Because this task can be complex, it would be wise to consult with a bankruptcy attorney to ensure that all of the information on the forms is complete and accurate - resulting in a full disclosure. A signature on the filing is an avowal, under penalty of perjury, that the information provided is correct. There is no reason to risk making that mistake.

Filing Multiple Bankruptcy Petitions

One common scheme is to file multiple bankruptcy petitions in different states and often with different names and other identifying information. The point is to slow down the court's processing of the bankruptcy filing and liquidation of the assets. That allows the filer more time to hide assets from creditors and the court. Unfortunately, this tactic also often results in other fraud and identity theft criminal charges.

Attempting to Bribe the Court-Appointed Trustee

Bribery is never a good idea, especially when the person is court-appointed. The Internal Revenue Service (IRS) considers bribing a court-appointed trustee as the worst form of bankruptcy fraud because it involves a fraud upon the court perpetrated by two people, one of whom the court trusted. The risk of criminal charges for doing that is in no way worth the potential benefit if the bribe works.

Help Needed

Bankruptcy is a complicated aspect of the law and filing is a strenuous process. Precision and full disclosure of one's assets and liabilities is crucial to a successful petition. Moreover, a smooth bankruptcy may take months of planning before even filing the petition. Therefore, if you or a loved one is considering filing for bankruptcy, contact an experienced bankruptcy attorney to discuss your situation and your options.