Though the bulk of the bankruptcy claims that have been filed in the last year in the United States have been for real reasons of overpowering claims, There has been a little number of fraud cases of bankruptcy too. Amongst the honest and hardworking Americans, There is certainly a subset of people who have put up credit card debts as they have withdrawn payments. There are also fraudsters who hide their individual assets so as to keep them from lenders and also use bankruptcy to hide their different types of fraud that they use to achieve a personal profit over the fact that bankruptcy is a relief to many who struggle with compelling creditors.
What is the outcome of these fraudulent processes?
The consequences of complicating bankruptcy especially through deliberate fraudulent activities can be very adverse
- Prolonged and stressful bankruptcy journey
- Alleged fraud claims from the creditors and the bankruptcy trustee
- Denial of the bankruptcy discharge
- Prosecution under the charges of a federal felony
For the sake of the clients who work with them, Recovery Law Group, who serves the customer base in Los Angeles, California and Dallas, TX have formulated the below scenarios.
The below situations talk of common bankruptcy frauds and the outcome of those that the filers/ creditors end up facing-
Common forms of Bankruptcy Fraud
Any fraudulent behavior, While the process of bankruptcy is carried out, can result in facing legal consequences and can amount to bankruptcy fraud. It is technically a crime that has its own set of after effects and legal actions associated with it. Here are some common forms of bankruptcy fraud –
- Incorrect statements/ false information under oath – Generally, All the bankruptcy filings are made under the penalty of perjury. Hence signing all documentation in lieu of, The bankruptcy process the debtor stands by the fact that the furnished information is true and correct. Also in the meeting of creditors, The debtor is kept under oath. By being dishonest in either of the above situations, The debtor may be adjudged and prosecuted for perjury.
- Concealing the assets–Furnishing all information with concerns to the possessed assets is a mandatory procedure in the bankruptcy process. The assets could either be of the exempt or non-exempt type. As a debtor, never exclude any property assuming that it cannot be traced like bitcoin or never transact the property through any fraudulent transfers.
- Piling up credit card debts/ Evading payments–This is a common type of bankruptcy fraud that occurs even before the debtor files for bankruptcy support. If a debtor proposes to file bankruptcy, then he or she needs to stop the usage of his credit cards and avoid piling up the debts on them.
Consequences of dishonest processes in bankruptcy
Adopting dishonest procedures or false statements in the bankruptcy process can have adverse effects on the filed bankruptcy case. A slight doubt in the process that is sensed by the creditor or the bankruptcy trustee can lead to the filing of an adversary proceeding. In cases of filing of an adversary proceeding, the bankruptcy trustee or the creditor may challenge the debtor on the credibility of the bankruptcy case either preventing the discharge of debts or by revoking the eligibility to file Chapter 7 bankruptcy. Besides these, the bankruptcy court also administers the situation and handles the fraud procedures as below:
- Deny few not all: In some cases, the court may permit the discharge most of the dischargeable debts but still deny it for the other types
- Deny all: Adverse scenario witnesses the denying to the discharge of every debt and hence the entire purpose of filing bankruptcy is wasted
- Conversion to another Chapter: The Chapter under which the bankruptcy case had been filed, says Chapter 7, can be later changed to a Chapter 13 bankruptcy. In this scenario, instead of facing a discharge of the debts, the debtor ends up paying them over a period of time to be finally relieved of them
- Case dismissal: In case the court is convinced of intentional fraudulent behavior in the case, Then it can completely dismiss the bankruptcy petition. If the removal is done with racism, Then the debtor will not be able to file for bankruptcy for a critical period of time.
Though it may sound as serious as it can get from the view of the court proceedings, The most adverse consequence is the federal crime angle to the bankruptcy fraud.
The US Code for Bankruptcy, states that it is a federal felony to cheat knowingly or do any fraudulent activities in bankruptcy cases. It may include any of the below:
- Making a false statement under the penalty of perjury
- Concealing of properties/ assets
- Offering a bribe
- Concealing, falsifying or destroying of information (specifically financial records)
- Making a false oath or account
A ‘scheme or artifice to defraud’ has been mentioned in section 157 of the US Code of Bankruptcy where businesses can be prosecuted for performing fraudulent activities on behalf of the consumers involved. A good example would be the performance of a business that assures consumers of being saved from eviction due to the backlog of rents, But in turn, records bankruptcy in the name of the consumer.
Conclusion – Being Honest help
The conclusion is straightforward and simple. Since we are dealing with the Government and also the creditworthiness of us is at stake, It is always safe by being honest and transparent. In most cases, the filers are desperate and honest people. In some cases, the creditors can be deceiving and will look out for opportunities against the debtor.
Experienced bankruptcy attorneys from Recovery Law Group can help you formalize a straightforward and honest process for your bankruptcy filing. Reach out to the skilled team!