The Single Most Common Form of Bankruptcy Fraud – And How to Avoid It

Avoid Bankruptcy Fraud

Most people think of fraud – especially fraud related to financial matters – as something committed by criminals. A person intends to break the law, they break the law, and if everything works out as it should they are punished for their wrongdoing and justice is served.

But did you know that it’s possible to commit a crime without intending to?

This occurs frequently when people file for bankruptcy. Anyone who files, no matter their intentions, could be accused of fraud if they fail to complete their bankruptcy paperwork in full. Even an honest mistake made when filing can land you in serious trouble and leave you facing accusations of fraud.

What is the most common reason people filing for bankruptcy with the best of intentions are accused of fraud?

It’s because they failed to report all of their assets.

Failing to report your assets in full when filing for bankruptcy can make it seem as if you are trying to conceal assets and prevent the court from liquidating or otherwise using them to repay your creditors. Nearly two-thirds of all fraud accusations related to bankruptcy are due to concealed assets and in many of these cases, the filer had no intention of committing a crime.

Fraud Can Be Accidental or Intentional – and the Court Rarely Cares Which is Which

Of course, there are instances in which people intentionally try to conceal their assets. They don’t want to lose something when they file, so they transfer ownership to a friend or family member, completely aware of the fact that it’s illegal to do so.

But there are also times when someone filing transfers his or her assets with the best intentions, only to learn later the act of doing so is illegal. It might seem like a good idea to sign your vehicle over to a friend or family member if you are at risk for having that vehicle repossessed, but it actually doesn’t do you any good in the long-run if you file for bankruptcy. The bankruptcy court can still take the vehicle to satisfy your debt to the creditor. And to make matters worse, not only did you lose your vehicle but you could also be accused of fraud.

The bankruptcy court has the authority to look back over any recent transactions you’ve conducted. Most of the time they review your financial records from the year leading up to when you filed. This includes any money you’ve spent leading up to your bankruptcy filing, as well as any assets you’ve sold or given away. If anything looks suspicious the court can request the recipient return the asset so it becomes part of your bankruptcy.

For more information about the financial review, you’ll undergo when you file for bankruptcy, check out this information from Nolo.com.

Relinquishing Assets is a Small Price to Pay to Avoid Accusations of Bankruptcy Fraud

Anyone filing for Chapter 7 bankruptcy must be willing to give up their property to repay their debts. Chapter 13 bankruptcy offers better protection for assets, but those filing should still not attempt to hide anything through asset transfers. The court expects those filing for bankruptcy, regardless of which chapter they are filing, to be open and honest about their debts and their assets.

What makes your situation even worse if you are filing for bankruptcy and you attempt to transfer assets is that you are not only leaving that asset at risk, you are jeopardizing your entire bankruptcy. You could even put yourself at risk for facing criminal charges or penalties and fines. Bankruptcy fraud is a crime and even accidental fraud can cost you a lot more than the loss of a single asset in the long-run.

Those intending to commit fraud related to their bankruptcy should understand the severity of their actions. And those who might accidentally commit fraud even with the best intentions should take their risk seriously. If you are considering bankruptcy it’s important to work with an experienced professional who can help you avoid problems. Contact R. Flay Cabiness, II, P.C. at (912) 554-3774 (Brunswick, GA); (912) 375-5620 (Hazlehurst, GA) or; (912)-554-3756 (Jesup, GA).