What is Bankruptcy Fraud?

Filing for bankruptcy is seldom an easy decision, but sometimes it is the only way out of what may be an insurmountable debt.

If it is the right path for you, you will have to list all your assets and property, including anything you may have transferred to somebody else, including relatives, within a specified period of time.

It doesn’t mean you’ll lose everything. Through exemptions, the courts allow you to keep certain things to allow you to maintain a household and your job.

There is little doubt that making the decision to file for bankruptcy is difficult, especially if you know you may lose something.

That may make it tempting to purposely conceal assets or hide information, but doing can make you guilty of bankruptcy fraud: a federal offense.

Chapter 7 bankruptcy fraud

Chapter 7 bankruptcy is the most common type of personal bankruptcy.

Under Chapter 7, items not protected as exemptions are generally liquidated (sold) in order to pay creditors.

Not everybody is eligible for this type of debt relief.

In order to qualify, the person seeking Chapter 7 bankruptcy must pass a “means test” in order to prove that their monthly income is equal to or less than the median income in the state in which you live.

The most common types of Chapter 7 bankruptcy fraud include:

      • Concealing jewelry, antiques or other valuable items, often by giving them to a relative for safekeeping until the bankruptcy is approved and completed
      • Failing to report all sources of income, such as freelance work or off-the-books work
      • Lying about income in order to qualify for Chapter 7
      • Deliberately running up new debt immediately before filing for bankruptcy
      • Filing false or incomplete information
      • Filing multiple bankruptcy petitions, including those in other states or under different identities or Social Security numbers

Chapter 13 bankruptcy fraud

Unlike Chapter 7, in which assets are liquidated and the funds are used to repay creditors, Chapter 13 bankruptcy allows the petitioner to repay debt over a three-to-five-year period of time.

This is most often used by those whose income exceeds that allowed for Chapter 7 bankruptcy or those who do not wish to lose their property or assets.

Chapter 13 fraud may include:

      • Falsifying income in order to reduce payments
      • Transferring interests in a home to multiple parties
      • Filing false or incomplete information

Penalties for bankruptcy fraud

Bankruptcy fraud is considered a white-collar crime, but that doesn’t mean that the penalties are just a slap on the wrist.

As a federal crime, it is investigated by the FBI and prosecuted by the U.S. Department of Justice (DOJ).

Moreover, a conviction puts a felony crime on your record, which may prohibit you from obtaining welfare benefits, traveling abroad, owning a firearm or getting a security clearance.

Penalties for and consequences of a conviction include:

      • Having your bankruptcy case thrown out of court
      • Debts will not be discharged
      • Fines of up to $250,000
      • Up to 20 years in prison

If your creditors or the trustee suspects that you are committing fraud, they can request a subpoena for a Rule 2004 Examination, in which they may examine the bankruptcy petitioner (the person filing for bankruptcy) or any potential material witnesses and compel attendance and production of documents.

The best way to ensure that you don’t get charged with bankruptcy fraud is to work with a lawyer who understands what is needed to complete documents thoroughly and accurately and to file them in a timely manner.

Avoiding bankruptcy fraud charges starts with talking to a knowledgeable, experienced Bronx bankruptcy attorney

If you are considering filing for bankruptcy or have been charged with or are under suspicion of bankruptcy fraud, it’s imperative that you seek immediate legal guidance.

To schedule a free, confidential consultation with bankruptcy attorney Thomas M. Denaro, please call us at (718) 863-6000 or contact our office online.

Thomas M. Denaro
About the Author: Thomas Denaro
Thomas M. Denaro is an experienced bankruptcy attorney serving the Bronx and surrounding areas. He represents Bronx families in bankruptcy court, and has handled thousands of Chapter 7 and Chapter 13 cases from beginning to end.