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What Is Bankruptcy Fraud?

Posted on in Bankruptcy

Bankruptcy fraud is a very serious matter. Federal authorities investigate and prosecute this crime very aggressively. So far this year, defendants in fraud cases have been sentenced to more than 30 years in prison and paid over three million dollars in fines and restitution.

Bribing a Trustee

These instances are rare, but certainly not unheard of. In addition to offering a trustee or other court-appointed official money or other property in exchange for looking the other way, some debtors offer jobs to a trustee's friend or relative or make some other indirect effort to exert undue influence.

Illegal Filing

If you filed a bankruptcy that was subsequently dismissed for some reason, perhaps due to failure to make a Chapter 13 payment, you cannot file another petition for at least 180 days. In addition, if you've filed a Chapter 13 within the last two years, the automatic stay may be cut short or may never even go into effect at all.

To get around this restriction, some people file bankruptcy under a false name or a false Social Security number. Homeowners who are desperately trying to avoid foreclosure often resort to this tactic. They may even lie to their bankruptcy lawyers to try to get a petition on file. These scams almost never work.

Filing False Forms

In preparing your bankruptcy schedules, the law distinguishes between making an accidental mistake and intentionally filing a false or incomplete form. It is the same principle as writing a bad check: it is only a crime to write a non-sufficient fund check if you know that you did not have enough funds in the account to cover the draft at the time you wrote the instrument.

Concealing Assets

This fourth area accounts for the vast majority of fraud prosecutions. Some debtors may “sell” nonexempt property to a third person for a very small amount with the understanding that they will buy it back after the bankruptcy is discharged. These transactions are fraudulent.

Debtors should be aware of the 90-day window. All financial transactions within the three months prior to filing are scrutinized closely. Specifically, the trustee is looking for new credit cards or other unsecured loans, the prepayment of certain debts, and preferential treatment (paying one bill while ignoring a similar account).

Be upfront with your attorney and do not be tempted to commit bankruptcy fraud. For a free phone consultation with experienced bankruptcy attorneys in Arlington Heights, contact Newland & Newland, LLP.

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