Are you Committing Bankruptcy Fraud? 5 Things To Know With Examples

Are you Committing Bankruptcy Fraud? 5 Things To Know With Examples
Information in this article does constitute legal advice, is for informational purposes only and may not constitute the most up-to-date information. Readers should contact their attorney for advice to any particular legal matter.

Information in this article does constitute legal advice, is for informational purposes only and may not constitute the most up-to-date information. Readers should contact their attorney for advice to any particular legal matter.

If you're struggling to pay your debts, the bankruptcy process can help you start fresh. You can either discharge your debts through Chapter 7 or reorganize them through Chapter 13. Once you receive a bankruptcy discharge, you're no longer legally obligated to pay the debt, and creditors cannot take any action to collect it.

Many people file for bankruptcy because of circumstances beyond their control, such as unemployment, illness, disability, divorce, accidental injury, or business failure. However, bankruptcy relief is also available to those who have made poor financial decisions or overused credit cards. The bankruptcy court doesn't judge why you need help.

Unfortunately, some people try to take advantage of the system and commit bankruptcy fraud. This is a serious crime that can result in severe penalties in federal court.

Bankruptcy Fraud Definition 

Did you know that bankruptcy fraud is a federal crime? It's true! Not only that, but it can also involve other crimes like identity theft, mortgage fraud, insurance fraud, and money laundering. In fact, the IRS has even uncovered specific cases of bankruptcy fraud.

So, what exactly constitutes bankruptcy fraud? According to 18 U.S.C. §152, there are nine instances of bankruptcy fraud. These include concealing property that belongs to the debtor, making false oaths, filing false claims against the debtor's estate, and even destroying or concealing documents related to the debtor's financial affairs or assets. If caught committing any of these acts, a person could be charged with bankruptcy fraud, along with other white-collar crimes.

It's important to note that bankruptcy fraud is a serious offense with serious consequences. If you suspect someone of committing bankruptcy fraud, it's important to report it to the proper authorities. By doing so, you could be helping to prevent others from falling victim to this type of crime.

What Are Your Options To Avoid Bankruptcy Fraud?

Many people are unaware of the various debt relief options available to them when considering bankruptcy. Chapter 7 bankruptcy may appear to be the most cost-effective option, but committing bankruptcy fraud is not a viable solution.

That's why we created a debt relief options calculator that compares five different options: 1) Chapter 7 bankruptcy eligibility and cost, 2) Chapter 13 payment plan, 3) Debt Management, 4) Debt Settlement, and 5) Debt Payoff Planning. This free calculator allows you to compare all of your options in a comprehensive manner, enabling you to make an informed decision.

Five Things You Need to Know About Bankruptcy Fraud

Thinking about filing for personal bankruptcy under Chapter 7 or Chapter 13? It's important to be mindful of the risks of bankruptcy fraud. Here are a few key facts to keep in mind:

1.  Hiding assets is the most common form of bankruptcy fraud

When someone files for bankruptcy, they must disclose all of their assets to the bankruptcy trustee, creditors, and court. However, some individuals may try to hide their assets in an attempt to keep them out of the bankruptcy process. This is known as bankruptcy fraud, and it is a serious offense.

There are several ways in which someone may attempt to conceal their assets during bankruptcy. These include:

  • Not reporting all of their property on bankruptcy schedules
  • Transferring property to someone else for little or no value
  • Giving property to another person to hold until after the bankruptcy is filed
  • Storing assets in a storage unit rented under someone else's name
  • Giving assets away before filing for bankruptcy, such as passing down family heirlooms to relatives
  • Destroying documents related to property, such as a will that outlines who should receive certain assets after the debtor's death

It's important to note that bankruptcy trustees are highly skilled at locating hidden assets. They have access to various resources and tools that help them identify assets and transfers that were not reported on the bankruptcy schedules. Attempting to hide assets during bankruptcy can result in serious consequences, including fines and even imprisonment. It's always best to be honest and transparent throughout the bankruptcy process.

2.  Any interested party can report bankruptcy fraud

Even without concrete evidence of fraud, anyone can report suspicions of bankruptcy fraud. For instance, if a Chapter 7 trustee suspects that you intentionally failed to list assets on your bankruptcy schedules or transferred property to your children, they can refer the case to the United States Trustee’s Office. Creditors and other interested parties can also report bankruptcy fraud to the United States Trustee.

The Federal Bureau of Investigations (FBI) is responsible for investigating allegations of bankruptcy fraud. You may recall the cases of Abigale Lee Miller (“Dance Moms”) and Teresa Giudice (“Real Housewives of New Jersey”) who were both sentenced to prison for bankruptcy fraud. The FBI takes bankruptcy fraud seriously and investigates all reported cases.

3.  You could be forced to testify under oath and provide evidence regarding allegations of bankruptcy fraud

If you're unfamiliar with Rule 2004 of the Federal Rules of Bankruptcy Procedure, it's an essential tool for trustees and other interested parties to investigate suspected bankruptcy fraud. This rule empowers debtors to be ordered to attend an examination and provide testimony, along with producing documents related to their bankruptcy case. It's an effective way to ensure transparency and accountability in the bankruptcy process.

However, it's crucial to note that failure to comply with a Rule 2004 order can result in court sanctions and penalties. So, it's essential for debtors to take these orders seriously and provide all the necessary information to avoid any legal consequences.

4.  Serious criminal penalties exist for bankruptcy fraud

Did you know that bankruptcy fraud can lead to serious legal consequences? If someone is convicted of bankruptcy fraud, they could face a prison sentence of up to five years and fines as high as $250,000. The severity of the penalties may vary depending on the specific details of the case and whether the individual is charged with multiple crimes. It's crucial to understand the gravity of bankruptcy fraud and its potential ramifications before engaging in any such activities.

5.  Honest mistakes may not constitute fraud, but they can have serious consequences 

If a person commits bankruptcy fraud, they must have done so knowingly and fraudulently. This means that they intentionally deceived others. Honest mistakes, however, may not lead to bankruptcy fraud charges, but they can still result in serious consequences for the debtor.

For instance, a debtor may forget to list an asset on their Chapter 7 bankruptcy schedules. The Chapter 7 trustee finds the asset and investigates. If the debtor made an honest mistake, they can amend the schedules to add the asset. However, the trustee may object to the debtor amending the bankruptcy exemptions to protect the asset. The judge may grant the trustee’s objection, and the debtor may lose the asset because they forgot to list it in the original bankruptcy forms.

When debtors sign bankruptcy forms, they sign them "under penalty of perjury." This means they swear under oath that the information they provided is true and accurate to the best of their knowledge. Therefore, it is crucial to review bankruptcy schedules carefully to ensure that all the information is both accurate and complete.

Examples of Bankruptcy Fraud

Bankruptcy fraud comes in many forms, making it impossible to list all the ways debtors might try to defraud the bankruptcy system. However, some common forms of bankruptcy fraud include giving a relative property to hide for you until your bankruptcy case is closed, withdrawing money from financial accounts and burying it in your backyard, and filing bankruptcy under a false identity.

Other examples include attempting to bribe a bankruptcy trustee or judge, putting cash on a table and walking away while family members take the money so you can “honestly” say you do not know where the money went, failing to include money you make from side jobs or under-the-table, and putting assets in your children’s names or a trust with the intent of filing a future bankruptcy case.

It's essential to note that the bankruptcy process exists to help individuals who need debt relief. If you cannot pay your bills, including filing a bankruptcy case, contact us to discuss debt-relief options. We can help you locate a bankruptcy attorney in your area and explore non-bankruptcy options to get rid of debt quickly and affordably.

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