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What is Bankruptcy Fraud?

Posted on in Bankruptcy Attorney Illinois
What is Bankruptcy Fraud?

Bankruptcy fraud is the act of defrauding a bankruptcy court or trustee for one's own financial gain, which is typically through not having to liquidate certain assets. It is considered to be a white collar crime because it is financial in nature and generally requires the offender to hold a privileged position, such as a financial advisor to the indebted individual.

When an individual commits bankruptcy fraud, he or she makes it more expensive for other borrowers to obtain loans from lending institutions because the lenders have to raise costs to borrowers to cover these risks.

How is Bankruptcy Fraud Committed?

There are a few different ways an individual can commit bankruptcy fraud. The most common way is to conceal assets to keep them from being liquidated in a Chapter 7 bankruptcy case. Concealment can be done by transferring the assets to other parties or simply failing to list them on a bankruptcy petition. Other ways to conceal assets can include destroying documents related to the assets and paying accomplices to hide them.

Other forms of bankruptcy fraud include:

  • Bribing a bankruptcy trustee into acting in a petitioner's favor. This can mean confirming fraudulent bankruptcy documents or closing a case despite all requirements not being met;
  • Operating a petition mill. Petition mills are operations that advertise themselves as financial consulting services, but actually file for bankruptcy on their clients' behalves, charging them for services while working through the process, which generally leaves the victim in debt and facing a damaged credit score; and
  • Filing for bankruptcy using false or incomplete information. Sometimes, individuals file for bankruptcy in multiple jurisdictions using false information as an attempt to slow the liquidation process or conceal assets.

When you file for bankruptcy, you must list all of your debts and assets accurately in the petition. Your lawyer can help you locate all your assets and debts so you can submit your bankruptcy paperwork correctly.

What are the Penalties for Bankruptcy Fraud?

For an individual to be convicted for bankruptcy fraud, the court must prove beyond a reasonable doubt that he or she knowingly misrepresented material facts in order to commit the fraud. Bankruptcy fraud is a federal crime. Individuals convicted of bankruptcy fraud can face up to five years in prison and fines of up to $250,000.

Work with an Experienced Elk Grove Bankruptcy Attorney

Even if you do not intend to commit an act of bankruptcy fraud, you can be charged with this offense and potentially face criminal penalties. Even in the best case scenario, your claim can be rejected by the court. The best way to avoid an accusation or charge of bankruptcy fraud is to work with an experienced bankruptcy attorney through each step of the process. To get started with a member of Newland & Newland, LLP, contact our firm to set up your initial consultation in our office. We serve clients in the Arlington Heights, Palatine, Rolling Meadows, Libertyville, Mundelein, Buffalo Grove, Schaumburg, Elk Grove, and Itasca areas.

(image courtesy of Aidan Bartos)

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