What is Bankruptcy Fraud?

In the United States, bankruptcy fraud is a federal crime. Bankruptcy is a legal process that allows a business or person to be met by all their debts due to an inability to pay. There are several types of bankruptcy, but everyone has the same definition of what types of actions constitute bankruptcy fraud.

There are three methods of committing bankruptcy fraud: secrecy of assets, parallel reviews and petitioning mills. The number of bankruptcy cases of fraud increases relative to the number of bankruptcy filings each year. Bankruptcy fraud beliefs can result in a fine of up to $ 250,000 US Dollars (USD) and / or up to five years in prison.


A blur of assets is the most common type of bankruptcy fraud


This type of fraud occurs when the debtor hides his assets in the declaration phase of the bankruptcy process, in an attempt to keep them from being liquidated. Accounts receivable may not include them in the asset list, transfer ownership of family or friends and move assets into off-shore accounts.

Notified in several countries arises when debtors filing for bankruptcy in more than one state. They make current incomplete lists of their assets on both applications, in an attempt to avoid winding up these assets. This type of bankruptcy fraud also includes situations where the debtor filing for bankruptcy under false or assumed name.


A petition mill is a particularly cruel form of bankruptcy fraud


Unlike concealment of assets or multiple applications, fraud is not committed by the debtor but by a third party. This type of bankruptcy fraud is common in poor neighborhoods, and the use of people faces exposure.

On a petitioning mill scheme, typically the debtor responds to an ad for the company that will help tenants avoid eviction from their rental accommodations. The company takes all the debtor’s information and charges large fees, they claim fighting for deferment. In fact, they have filed for bankruptcy, destroyed the debtor’s credit, and drained the cash.


Changes in Bankruptcy Act have resulted in increasing of the number of bankruptcy fraud

bankruptcy fraud

Changes in the Bankruptcy Act have resulted in a significant increase in the number of bankruptcy fraud cases for secrecy of assets. In the new law, a debtor cannot file the chapter 7 bankruptcy if their disposable income is greater than $ 183.50 per month. He is forced to file Chapter 13 bankruptcy.

Under Chapter 7, all debts are forgiven, while under Chapter 13, the debtor must make monthly payments against part of her debt for three to five years. When this period is complete, the debtor is bankrupt. The bankruptcy remains on the credit file for 10 years from the date of discharge.

In order to avoid Chapter 13, debtors attempt to report their income over the past six months. They increase their spending to reduce the amount of available revenue reported. These steps both fall into the concealment of assets and are considered bankruptcy fraud.