Bankruptcy fraud can take many different forms when a debtor lies or attempts to take advantage of the bankruptcy process. Not only can bankruptcy fraud result in fines or prison time, it can also cause your bankruptcy discharge to be denied or revoked.
Types of Bankruptcy Fraud
The bankruptcy process gives debtors a fresh start by discharging certain debts. In return, bankruptcy debtors are expected to be completely honest and forthright about all of their financial information so that the bankruptcy trustee can give all creditors the maximum amount they are legally entitled.
Unfortunately, some debtors want to receive the benefits of the bankruptcy discharge without telling the truth about their assets, income, or transactions. The following are some common types of bankruptcy fraud:
- Debtors may hide assets so that they are not taken by the bankruptcy estate and distributed to creditors. A failure to list this asset on your bankruptcy schedules is fraud. It is also fraudulent to transfer assets to a friend or relative just before a bankruptcy with an agreement to have them transferred back at a later time.
- Transferring assets to friends or relatives just before your bankruptcy—even if you allow them to keep the assets—is also fraudulent. You will be asked about recent transfers when filing your bankruptcy documents, and you must disclose all recent transfers. Even if you owed money to a relative, you cannot choose to pay them off at the expense of your other creditors. This is known as a fraudulent transfer, and the bankruptcy trustee has the power to undo these transfers, bringing the assets back into the bankruptcy estate.
- Just before a bankruptcy, a debtor may rack up excessive credit card debt, knowing that the debt will be discharged in bankruptcy. This is illegal unless you can show that the charges were used for necessities.
How to Avoid Bankruptcy Fraud
Bankruptcy fraud happens when you intentionally lie or omit required information, so the easiest way to avoid bankruptcy fraud is to tell the whole truth on all of your bankruptcy schedules. You must fully disclose all assets, income, and even transfers you made before the bankruptcy filing.
An experienced bankruptcy attorney can help you prepare for your bankruptcy and avoid any improper transfers or fraudulent transactions prior to your bankruptcy case.
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