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What is Bankruptcy Fraud?

Bankruptcy fraud is considered a “white-collar crime” one that requires premeditation, an intent to commit a crime and legal bankruptcy paperwork.  There are four main different types of bankruptcy fraud which include:

  • Concealment of Assets: The debtor conceals assets to prevent from the assets being liquidated or seized. The debtor may try to hide the items location, report the items stolen, or temporarily transfer the items to family and friends.
  • False Information: The debtor files forms with incorrect information or forms that are intentionally not complete or include intentionally false information.  This does not include inadvertent mistakes, but rather actual intentionally false information with the purpose of misleading the court, the bankruptcy trustee and / or creditors.
  • Multiple or Fraudulent Bankruptcy Filings: The debtor has filed for bankruptcy multiple times, sometimes under multiple chapters 0f bankruptcy (Chapter 7, Chapter 13, Chapter 11) using real and or false information; possibly in multiple states or using fake social security numbers and false identities.  Sometimes, despite a court order to cease filing bankruptcy cases, an individual will just continue filing using their own name and repeatedly file bankruptcy cases with the sole purpose of getting the benefit of the automatic stay, but never showing up for the scheduled meeting with the bankruptcy trustee.
  • Bribery: The debtor attempts to bribe a court appointed representative i.e. the bankruptcy trustee.

In many instances bankruptcy fraud is coupled with identity theft, tax fraud, money laundering and mortgage fraud.

Bankruptcy Fraud Involving Concealment of Assets
In almost all cases bankruptcy fraud is exposed because the debtor is attempting to conceal assets. Legally debts may only be discharged if they are listed by the debtor on bankruptcy forms and schedules. If the debts are concealed the debtor can illegally maintain the asset while writing off the rest of the debt. This may also lead to money laundering to hide assets and additional other crimes. If caught, the debtor will be denied the bankruptcy by the bankruptcy trustee.

Bankruptcy Fraud Involving Paper Pushers / Bankruptcy Legal Mills
Paper pushers are legal mills generally without real legal representation. This types of paper mills generally are a bankruptcy scheme, where unannounced / undisclosed to the debtor the paper pushers file a bankruptcy case for the debtor. These types of schemes are typically targeted in lower income situations in which the debtor is really seeking a legal halt to the eviction process and to stop the casting out of their possessions. In most fraudulent schemes the paper pushers file for bankruptcy without telling the debtor and then proceeds to intentionally cost the debtor more money by expanding the bankruptcy case. In some cases the paper pushers will miss represent themselves as consultation services which actually victimizes the debtor.

Bankruptcy Fraud Involving Multiple Filed Cases by the Same Person
Debtors may also commit bankruptcy fraud by filing multiple bankruptcy cases in different names, in different states, under aliases, using false information, or other fraudulent activities. The false claims and filings can clog the bankruptcy court system and create expenses tolling on the legal system. Debtors usually file several separate cases in an attempt to try and hide concealed assets.

The Penalty for Bankruptcy Fraud
Bankruptcy fraud is a serious matter which does not only mean that the bankruptcy case will be dismissed but also means that the debtor or any other fraudulent actors will be criminally prosecuted. The Federal Legal Statute 18 U.S.C. § 151 requires that the defendant, “knowingly and fraudulently made a misrepresentation of material facts.” If it is found the debtor is guilty of bankruptcy fraud then the guilty person can be sentenced up to five years imprisonment, a federal felony, and a fine of up to $250,000.00, or both jail and fines as per 18 U.S.C. § 152.