The bankruptcy process in the United States is a legal proceeding, handled in federal courts, that is designed to allow individuals or businesses freedom from their debts, while simultaneously providing creditors an opportunity for repayment.2 There are a number of ways that bankruptcy filers attempt to avoid paying creditors by concealing assets or abusing the system resulting in bankruptcy fraud.
Common Fraud Scheme #1: Purchasing Items You Can’t Afford Prior to Your Bankruptcy
The courts don’t look kindly on debtors who use credit, including their credit cards, prior to filing for bankruptcy relief to purchase items they know they won’t be able to pay for. If you buy luxury goods or services prior to your bankruptcy you are committing what is termed “presumptive fraud” and that can have a profound impact on whether you are allowed to file for bankruptcy relief.
If you are thinking about filing for bankruptcy protection you can use your credit cards for food, utilities, rent and other essential necessities.3 Do not use your credit cards for cash advances or other items not considered essential to your survival. Recent payday loans can also be a reason your bankruptcy petition may be turned down.
Common Fraud Scheme #2: Transferring Your Property to Others Prior to Filing for Bankruptcy
Another common fraud scheme is for people considering filing for bankruptcy to give their property, including real estate, automobiles and cash to friends or relatives. Some fraudulently transfer their money to overseas banks, believing that the money is safe from U.S. bankruptcy fraud investigations. These tactics can result in not only your bankruptcy petition being turned down, but also possible jail time and cash penalties.
Keeping the assets, especially property, in your name may actually mean that you can keep the asset. To keep your home in a Chapter 7 bankruptcy filers must be current on payments and protect all home equity with a bankruptcy exemption while in a Chapter 13 bankruptcy filers behind on a mortgage can catch up on missed payments and keep their homes.4
Using the time just prior to filing for bankruptcy protection to pay off a relative or friend that loaned you money is also not a good idea as the bankruptcy trustee handling your bankruptcy can sue the person to get the money back.5
Common Fraud Scheme #3: Knowingly Making False Statements in Your Bankruptcy Filing
One of the most common forms of bankruptcy fraud is the failure by debtors to report all assets. When you file for bankruptcy protection you have to fill out documents for the court and these documents are typically submitted as sworn testimony. One of those documents is a list of every account and asset in which you have a legal interest. If you deliberately lie on these documents you are committing perjury, which can subject you to criminal prosecution.
While concealing assets outright is fraud, so too, is undervaluing property that you own. For example, if you declare that the value of your vehicle is $20,000, but it is actually $30,000 by published standards, that may result in a fraud accusation.
Bankruptcy is a difficult process, both legally and emotionally. Seeking the help of an experienced bankruptcy attorney or bankruptcy professional is your best way to ensure that you are following the law and won’t be denied bankruptcy protections, or worse yet, prosecuted for bankruptcy fraud.
Hines Law is a bankruptcy firm in Massachusetts committed to helping debtors understand and navigate the bankruptcy process. Overwhelming financial debt can wreak havoc in all aspects of your life. The bankruptcy attorneys at our firm have the experience and compassion to help. If you have questions about bankruptcy or need to file Chapter 7 or Chapter 13 call to schedule a Free Consultation.