Tips to Recognize and Prevent Bankruptcy Fraud

Bankruptcy allows individuals and businesses to get a fresh start by reorganizing or distributing debts. However, fraud can tarnish the system, and vigilance and transparency are critical to keeping it intact. If you are filing for bankruptcy, be sure to check with your York PA bankruptcy attorney to make sure paperwork is filed correctly.

Examples of bankruptcy fraud include selling high-value assets for very low prices or bribing a trustee. Here are some tips to recognize and prevent these frauds.

1. Check Your Credit Report

If you have a fraudulent bankruptcy on your credit report, it's important to know that you can dispute it with the three major credit bureaus. The Fair Credit Reporting Act allows you 30 days to contact the bureaus and ask for a complete investigation of your claims.

Fraudulent bankruptcy filings cost creditors billions each year. The Department of Justice prosecutes cases of bankruptcy fraud with federal crimes like perjury, hiding assets, destroying or falsifying information, and other serious offenses that carry stiff fines and prison sentences.

Debtors must disclose all of their property, including real estate, vehicles and investments in their bankruptcy papers. Hiding assets or undervaluing them is a common form of bankruptcy fraud. Creditors can only liquidate assets listed in a debtor's bankruptcy, so concealing them makes it more expensive for them to lend.

2. Ask Questions

If you are a creditor or other party involved in bankruptcy proceedings, it is important to ask questions if you have suspicions of fraud. Fraudulent activity can include concealing assets, lying on bankruptcy forms or documents, and bribing trustees.

A common type of bankruptcy fraud involves debtors who file for bankruptcy and then sell property at a reduced price to a straw buyer, then avoid paying their creditors with the money from the sale. This is also known as a bust-out scheme.

It is important to educate yourself about bankruptcy and the rules that govern it. This can help you avoid making errors on your paperwork and being guilty of fraud. Contact a bankruptcy attorney, such as Ritter Spencer Cheng, to learn more about bankruptcy filings and the requirements of a successful case.

3. Don't Be Afraid to Ask Questions

While it is not unusual to make a mistake during bankruptcy, intentionally misleading or defrauding creditors and the court can get you in big trouble. Bankruptcy fraud can involve a variety of activities, including hiding or undervaluing assets, destroying documents, using false identity information, bribing court officials and stealing from the estate.

The most common forms of bankruptcy fraud include concealing assets, petition mill schemes, multiple filings and bust out schemes. It can also include lying under oath, filing a false form and other federal crimes.

Bankruptcy fraud investigations can be triggered by reports from creditors, trustees and concerned individuals or through random audits. A defendant can avoid a fraud conviction if they can contradict the prosecution's claim, poke holes in the evidence or provide a legitimate legal explanation for their actions.

4. Be Honest

While bankruptcy provides a way for people to get a fresh start, there are still some individuals who try to take advantage of the process. These individuals conceal assets and falsify information during the bankruptcy filing.

For example, a debtor could be guilty of fraud if they fail to disclose an asset or incorrectly state its value on their bankruptcy paperwork. Failing to list a vacation home, for example, could be considered fraud.

More than 70% of bankruptcy fraud cases involve concealing assets. This can include transferring assets to family members or friends before filing, undervaluing assets, and accumulating new debt shortly before or during bankruptcy. This type of fraud can result in large fines and even prison time. Other types of fraud can include petition mills, multiple filing schemes, and bust-out schemes.

5. Don't Make Mistakes

When it comes to bankruptcy, the courts require extensive documentation. This means that submitting fraudulent documents could land you in some big trouble. Bankruptcy fraud can include anything from concealing assets to using a petition mill to file false information.

For instance, hiding assets involves hiding money in offshore accounts, putting accounts under the names of family members, or moving money between different accounts. It also includes undervaluing assets so that you can pay less to creditors.

Those who don't follow the rules could be hit with civil or criminal charges. Civil penalties include losing the protection of exemptions and being fined. Criminal charges carry hefty fines or even jail time. In some cases, prosecutors add counts for other federal crimes, such as mail fraud, wire fraud, identity theft and money laundering.