Bankruptcy is a tool that is meant to be used when all other efforts at resolving debts have been exhausted and when there is nowhere else for the borrower to turn.

It’s an important protection that does away with more archaic methods of dealing with insurmountable debt, including physical confinement in Debtor’s Prison (although debt-related imprisonment is still in current practice in cases of child support or criminal justice debt defaults, which vary by state).

Unfortunately, unscrupulous individuals who are out to game the system will knowingly use the bankruptcy process as a means of manipulating assets and effectively stealing from their creditors. This is known as bankruptcy fraud, and it’s an alarmingly common type of white collar crime both in the United States and abroad.

In this article, the legal team at Matthew R. Osborne, PC is addressing the topic of bankruptcy fraud by exploring the four most common forms that it can take.

#1: Asset Concealment to Avoid Forfeiture

When a debtor goes through the bankruptcy filing process, the court will order that all available assets be forfeited and forced into liquidation. After this happens, the sum total of said liquidated assets will be distributed to the debtors creditors according to the stipulations laid forth by the courts judgement.

However, the court only knows what assets the debtor has according to what he or she discloses. It’s possible to make no mention of cash, precious metals, jewelry, or other assets that have tangible worth (and relevance to the bankruptcy case). Make no mistake: this is textbook bankruptcy fraud, and a conviction can carry a five-year prison sentence in addition to extensive court and attorneys fees.

This type of bankruptcy fraud is by far the most common, representing as much as 70% of all bankruptcy fraud convictions in the United States.

#2: Intentional Misrepresentation or Incomplete Documentation

This type of bankruptcy fraud is more nuanced and administrative in nature, as it involves the bankruptcy filer willfully presenting false or inaccurate forms to the court.

When key information is intentionally undisclosed (especially when the inclusion of it would significantly change the outcome of the bankruptcy judgement), there are grounds for a charge of bankruptcy fraud.

Additionally, because bankruptcy form submissions are considered sworn testimony in a court of law, any intentional misrepresentation or incomplete documentation is perjurous, setting the stage for even more criminal penalties.

Both perjury and fraud in bankruptcy cases are federally prosecutable offenses under U.S. Code Chapter 9.

#3: Third-Party Bankruptcy Fraud Schemes

Consider the following scenario.

types of bankruptcy fraudA property renter falls into arrears with her rent. Months go by, and the renter is still unable to pay her rent, and she is at risk of eviction. Then, seemingly out of nowhere, an eviction consultancy offers their services, promising to help her avoid eviction by negotiating on her behalf.

The renter, at her wits end with her financial situation, agrees to the offer and grants the consultancy power of attorney. In compensation for this ‘service’, the renter agrees to pay the consultancy for as long as it takes to resolve the eviction situation.

Instead of negotiating, the consultancy (often referred to as a Petition Mill) files for bankruptcy on the renters behalf, and then files petition after petition during the bankruptcy court proceedings, drawing out the timeline, destroying the renters credit score, and charging the renter exorbitant fees along the way.

#4: Duplicate Filing in Multiple Jurisdictions

Most bankruptcy courts operate in silos. This is to say, they don’t share information among each other. This makes it possible for someone to file for bankruptcy in multiple jurisdictions using a mishmash of identifications (some real, some false).

This can be done to protect the filer from defaults, repossessions, or collections levied against them more often than is legally permissible. By filing for bankruptcy in multiple jurisdictions over time and using false information to do so, the borrower is exploiting the bankruptcy process and using it for financial gain. This constitutes bankruptcy fraud.

Are You a Victim of Bankruptcy Fraud? Contact Us Today

If your likeness, social security number, or other identifying information has been used to file for bankruptcy without your knowledge or involvement, it’s possible you won’t even know about it until your credit report reflects it.

This can be incredibly frustrating to deal with, but there are actions you can take. And, our team can help.

To learn more about how to protect yourself from bankruptcy fraud schemes, contact our office today and schedule a case review.