What is Bankruptcy Fraud?
Bankruptcy fraud refers to the illegal and deceptive activities that occur when an individual or organization intentionally engages in fraudulent behavior relating to a bankruptcy proceeding. Those who commit bankruptcy fraud may hide assets, misrepresent financial information or otherwise take advantage of the legal process of bankruptcy. There are serious penalties for bankruptcy including criminal charges, fines and imprisonment.
Key Takeaways
- Bankruptcy fraud refers to illegal and deceptive acts that occur when an individual or entity intentionally engages in dishonest or fraudulent behavior in relation to a bankruptcy proceeding.
- Bankruptcy fraud undermines the integrity of the United States bankruptcy system
- According to Cornell Law, about 70 percent of bankruptcy fraud “involves the concealment of assets.”
Types of Bankruptcy Fraud
Although concealment of assets is the most common type, there are many different types of bankruptcy fraud. Below, we will review some of the most prevalent types of bankruptcy fraud in the United States.
- Concealment of Assets: Cornell Law reports that nearly 70 percent of all bankruptcy fraud cases involve the concealment of assets. In these situations, an individual or entity purposely fails to list every one of their assets on a bankruptcy claim in hopes that creditors cannot liquidate assets of which they are not aware. Concealed assets may include cash, commercial property, residential housing and interests in corporations.
- Petition Mills: Petition mills are schemes in which an individual or entity files bankruptcy on behalf of others, typically low-income clients. These schemes generally attract clients by advertising false claims that they are able to help poor tenants avoid eviction. However, without permission from the tenant, petition mills file for bankruptcy under the individual’s name.
- Multiple Filings: Some individuals engage in bankruptcy fraud by filing for bankruptcy multiple times in different jurisdictions, while neglecting to disclose previous filings. Perpetrators may use false identities to repeatedly file for bankruptcy in hopes to fraudulently discharge debts. In these cases, false statements are common, such as denial that the petitioner has filed any previous bankruptcy claims.
- Asset Transfers: One common tactic of bankruptcy fraud is to improperly transfer assets to family members, friends, or business associates prior to filing for bankruptcy. A debtor who fears their assets may end up liquidated in bankruptcy may sell or gift these assets in advance at significantly below market value. This shields the assets from creditors and from seizure during the bankruptcy process, hampering the court and trustees' ability to settle liabilities and debts. Likewise, debtors may even continue using and benefiting from these assets despite the fraudulent transfers.
Bottom Line
There are many bad faith approaches that undermine the bankruptcy system. If you suspect fraudulent activity is occurring within your organization, or if you believe you have been falsely accused of committing bankruptcy fraud, acquiring expert legal assistance is crucial. Get in touch with a specialized attorney today with Attorney At Law.
