How Does Bankruptcy Fraud Happen?
Most people go into bankruptcy with the best intentions, and with no intention at all to commit bankruptcy fraud. But fraud—or at least allegations of fraud—do happen in bankruptcy cases. To avoid problems or allegations of fraud, it may be helpful to identify situations where a court (or creditors) can begin to think there is some kind of fraud going on.
Sometimes, people innocently don’t list all their belongings. Maybe they forgot about things that they own. Maybe they were just lazy, and cut corners when filling out bankruptcy forms that ask for disclosure of property owned by the debtor. And certainly, in most cases, you won’t get in trouble for saying you own 13 pairs of shorts when in fact you own 14 pairs, or if you don’t disclose your electric toothbrush.
But hiding, failing to list or purposely concealing stuff you own is bankruptcy fraud. Many people try to play games by “selling” mom a valuable asset, liquidating property for little or no money, or by wiping out bank accounts just before filing for bankruptcy.
Others may say that property is owned by a business, when in fact, it is owned by the consumer. All of this is clear bankruptcy fraud, and in many cases, the court will find out.
Attempting to encumber property with loans or liens, to lower value or equity in property, is a form of bankruptcy fraud. You cannot purposely put a lien on property just to make it seem like you have less equity in the property.
Charging Up Cards
Certainly, if you need to charge expenses necessary to live, such as rent, gas, or food, that may be understandable.
But many people, knowing they will be filing for bankruptcy, think it’s a good time to take that vacation or spend money on jewelry, valuables, or repairs. Running up a bill knowing that you are going to file for bankruptcy can be considered bankruptcy fraud—and even if the court doesn’t object, the creditor left with the soon-to-be discharged loan will object.
Not Providing Documents
In bankruptcy the court will want some basic financial information from you. Information may include bank statements or credit card statements.
If there is something that you are concerned about on those documents, you should discuss that with your bankruptcy lawyer. But you should never hide, or conceal, records that the court needs to evaluate your case.
Intent Has to be Shown
The good news for filers, is that a showing of fraud requires intent. Accidental failures to disclose property can still lead to a case being dismissed before a discharge is entered, but as for criminal bankruptcy fraud charges, a court needs to find that the filer knowingly and intentionally meant to mislead or deceive the bankruptcy court.