Bankruptcy fraud is a federal crime in the United States that involves deliberately attempting to evade or manipulate bankruptcy laws, typically to avoid paying debts. It often involves a person or business providing false information or hiding assets during a bankruptcy proceeding.
A bankruptcy fraud attorney is a lawyer who deals with cases of bankruptcy fraud. These lawyers assist in representing individuals or businesses accused of bankruptcy fraud or help in uncovering fraud during bankruptcy proceedings. They have a deep understanding of bankruptcy laws and fraud regulations and use this knowledge to provide legal advice and representation.
What Are the Most Common Types of Bankruptcy Fraud?
Here are some of the most common types of fraud when filing for bankruptcy.
Concealment of Assets
This type of bankruptcy fraud happens when an individual intentionally hides or misrepresents their assets to avoid having them liquidated to repay creditors in a bankruptcy case. Methods of concealment can range from simply not listing a valuable asset in the bankruptcy paperwork to more complicated schemes, such as transferring ownership of assets to friends or family members prior to filing bankruptcy.
In some cases, people might move assets offshore, making it difficult for the bankruptcy trustee to access them. Some people may also try to conceal assets by converting them into forms that might be exempted under bankruptcy laws, such as putting money into retirement accounts. It’s important to note that all of these actions are illegal and can result in severe penalties, including imprisonment and fines, in addition to being required to pay back the concealed assets.
Multiple filings refer to a situation where a debtor is filing for bankruptcy multiple times, either using their own name, a false name, or the names of others. The debtor might do this to exploit the automatic stay that comes with each filing, which temporarily stops all debt collection efforts, including lawsuits, wage garnishments, and phone calls.
This scheme can involve the use of real or fabricated Social Security numbers, false financial statements, and even identity theft. The aim is typically to confuse creditors and the courts and draw out the time it takes to discharge their debts or to have their case dismissed.
Providing false information during the bankruptcy process is another form of fraud. This can involve a wide range of deceptive activities, such as:
- Overstating expenses or debts;
- Understating income;
- Creating fictitious debts;
- Using a false identity;
- Forging documents.
The aim is to manipulate the bankruptcy process in order to discharge more debts or to retain more assets than would be permissible with accurate information.
Chapter 7 Bankruptcy Fraud
In a Chapter 7 bankruptcy, the debtor’s non-exempt assets are liquidated (sold off) to pay back creditors. Fraud in this type of bankruptcy often involves the concealment of assets to avoid their liquidation. Because all non-exempt property can be sold in a Chapter 7 case, the incentive to hide or undervalue assets can be high.
There can also be fraud related to the means test for Chapter 7. To qualify for Chapter 7, a debtor has to pass a means test, which considers their income and expenses. Some people may manipulate or falsify their income or expenses to pass this test.
Chapter 13 Bankruptcy Fraud
Chapter 13 bankruptcy allows the debtor to keep their property, but they must pay back their debts over a three to five-year period. Fraud in this type of bankruptcy might involve proposing a repayment plan that is unrealistically low based on the debtor’s true income and assets.
In some cases, a debtor may falsify their income information to show that they have less money available for debt repayment. Alternatively, they might exaggerate their expenses to reduce the disposable income that is available to pay creditors. Such tactics are fraudulent and can result in the dismissal of the bankruptcy case, fines, or even criminal charges.
Why Is Transferring Property Before or During Bankruptcy Fraudulent?
Transferring property before or during bankruptcy can be considered fraudulent if it’s done with the intention to hide assets from the bankruptcy trustee and creditors. In general, transferring assets one year before filing bankruptcy can be scrutinized and possibly reversed by the bankruptcy court.
What Is a Luxury Purchase and Why Is It Fraudulent?
A luxury purchase is buying an expensive item or service that is unnecessary for basic needs. Making luxury purchases before filing for bankruptcy can be considered fraudulent if it is done with the intent to deplete assets that would otherwise be used to repay creditors.
In the context of bankruptcy, there’s a presumption that any luxury goods or services purchased or cash advances taken within 90 days before filing for bankruptcy were made or received fraudulently. The debtor is burdened to prove that these purchases or cash advances were necessary and made in good faith.
What Happens if the Debtor Is Convicted of Bankruptcy Fraud?
Bankruptcy fraud is a federal crime in the United States and carries serious penalties. If convicted, a debtor can face up to five years in federal prison, a fine of up to $250,000 for individuals ($500,000 for businesses), or both. Additionally, if a debtor is found guilty of bankruptcy fraud, their debts will typically not be discharged, and they will still owe them after the bankruptcy case concludes.
Defenses against bankruptcy fraud charges typically involve proving that any mistakes made were not intentional or fraudulent. Bankruptcy fraud defenses include demonstrating a lack of understanding of the bankruptcy process or showing that any asset concealment was unintentional.
It is vital that anyone facing these charges consult with a lawyer who practices bankruptcy law, as they can help craft an appropriate defense based on the specific circumstances of the case.
Can Non-Debtors Commit Bankruptcy Fraud?
Yes, non-debtors can also commit bankruptcy fraud. This can happen if a non-debtor knowingly assists a debtor in hiding assets, falsifying records, or otherwise engaging in fraudulent activity.
Additionally, non-debtors, such as bankruptcy petition preparers or credit counseling agencies, can also engage in fraudulent behavior, such as filing false documents with the court or taking advantage of debtors.
Are Bankruptcy Scams Fraudulent?
Yes, bankruptcy scams are fraudulent. They typically involve schemes to exploit those who are facing or considering bankruptcy. For example, a scam might promise to make a debtor’s debts “go away” for a fee, only for the scammer to take the money and do nothing. Or a scammer might offer to help a debtor file bankruptcy but then use their personal information for identity theft. These scams are illegal and can be prosecuted under federal and state laws.
Do I Need a Lawyer?
If you are facing bankruptcy, considering bankruptcy, or if you’ve been accused of bankruptcy fraud, it is strongly recommended that you consult with a qualified attorney. This area of law is quite complex and can have significant consequences.
LegalMatch can help you find the right fraud lawyer for your needs. Our service matches you with pre-screened lawyers in your area who can assist you with your legal issues. You can review their qualifications, consult with them about your case, and decide whether they are the right fit for you. When dealing with something as serious as bankruptcy or fraud allegations, having the right legal advice is crucial.