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Understanding Bankruptcy Fraud

Bankruptcy is a legal process through which a business or individual is discharged of the debts they are unable to pay. When it comes to bankruptcy fraud, it usually takes one of three forms: concealment of assets, multiple filings, and petition mills. Bankruptcy fraud is a federal crime, and a conviction can result in a fine up to $250,000 and/or a five-year jail sentence.

Concealment of Assets

The most common type of bankruptcy fraud is concealment of assets. This is when a debtor hides assets during the portion of the bankruptcy process where one is supposed to declare all assets, usually through transferring the asset to family or friends, moving the assets to off-shore accounts, or simply by failing to include them on the list of assets. This is usually done in an attempt to keep these assets from being liquidated.

Multiple Filings

Multiple filing is when a debtor files for bankruptcy in more than one state, and submits incomplete lists of assets on both filings to avid liquidation of those assets. It is also considered a “multiple filing” when a debtor files for bankruptcy under a false or assumed name.

Petition Mill

Petition mill bankruptcy fraud is unique because the fraud is perpetrated by a third party, not the debtor. This is commonly found in poor neighborhoods where people often take advantage of debtors facing eviction.

In this scheme, a debtor is targeted by a firm that offers help to debtors looking to avoid eviction. In exchange for large fees, the firm then takes the debtor’s information, claiming they will help fight the eviction. But in reality, they file for bankruptcy and drain the cash resources, thus ruining the debtor’s credit.

Hire a Lawyer

If you are facing bankruptcy, it’s advised that you hire a lawyer. They can advise you on the necessary steps you need to take to file a legal and valid bankruptcy.

Source: WiseGEEK, What is Bankruptcy Fraud, 2014

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