Bankruptcy fraud comes with a sentence of either a fine up to $250,000 or up to five years in prison, or both.
Four Common Forms of Bankruptcy Fraud
Bankruptcy fraud is a white-collar crime taking form in about four typical ways:
1. Debtors conceal assets in an attempt to avoid having to forfeit them.
2. Individuals intentionally file false and/or incomplete forms.
3. Sometimes individuals file multiple times utilizing either false information or real information but in several states.
4. The last form of fraud involves bribing a court-appointed trustee.
Often times one of these forms of fraud will be coupled with a second crime such as identity theft, mortgage fraud, money laundering, and public corruption.
Concealed Assets as Bankruptcy Fraud
Almost 70% of all bankruptcy fraud involves concealing assets. Because creditors only liquidate assets disclosed by the debtor, any undisclosed assets could be kept by the debtor without the court knowing. If the debtor fails to reveal certain assets, the debtor can keep the assets despite owing an outstanding debt. Often times, to further conceal the assets, businesses or individuals may transfer these unrevealed assets to friends, relatives, or an associate.
Petition Mills Bankruptcy Fraud
Petition mills are a type of bankruptcy fraud that’s on the rise. Petition mills passing themselves off as consulting services allege they are able to keep financially-strapped tenants from becoming evicted. So while a tenant believes they are receiving help to avoid eviction, the petition mill actually files the tenant for bankruptcy, dragging out the case while charging the tenant exorbitant fees in “service” charges, emptying the tenant’s savings account, and ruining the tenant’s credit score.
Multiple Filing Fraud
Multiple filing fraud consists of filing for bankruptcy in multiple states. The filer either uses the same name and information, or uses aliases and fake information, or some combination thereof, in an attempt to provide more cover for concealing assets. These multiple filings can slow down the court systems’ ability to process a bankruptcy filing and liquidate the assets.