Bankruptcy offers a fresh start for individuals burdened by debt, but it comes with strict rules and legal responsibilities. Fraudulent actions in bankruptcy cases are considered federal crimes, punishable by fines of up to $250,000, imprisonment for up to twenty years, or both. Understanding what constitutes bankruptcy fraud and how to avoid it is essential when filing for bankruptcy.

What Is Bankruptcy Fraud?

Bankruptcy fraud occurs when an individual intentionally provides false or misleading information, conceals assets, or otherwise violates bankruptcy laws to gain an unfair advantage.

The Declaration: A Legal Promise

Before filing a bankruptcy petition, you must sign a declaration under penalty of perjury, affirming the accuracy and truthfulness of the information provided. The declaration serves as a binding legal statement, and any deviation from the truth could result in severe consequences.

Federal Statutes Addressing Bankruptcy Fraud:

  • 18 U.S.C. § 152: Prohibits concealment of assets, false statements, and fraudulent claims.
  • 18 U.S.C. § 1341: Addresses mail fraud in bankruptcy cases.
  • 18 U.S.C. § 1519: Covers falsifying documents related to bankruptcy.
  • 18 U.S.C. § 3571: Establishes penalties for violations, including hefty fines.

Common Types of Bankruptcy Fraud

1. Concealing Assets

Failing to disclose all assets to the court in an attempt to protect them from creditors.

Examples:

  • Not reporting bank accounts, valuable collectibles, or real estate.
  • Transferring property to friends or relatives before filing.

2. Providing False Information

Submitting inaccurate or inflated details about finances, income, or property.

Examples:

  • Misrepresenting income levels or property values.
  • Inflating the worth of assets to secure higher credit before filing.

3. Fraudulent Transfers or Sales

Selling or transferring assets to avoid liquidation in bankruptcy.

Examples:

  • Selling collateral without lender consent.
  • Gifting expensive items to family to hide them from the bankruptcy process.

Consequences of Bankruptcy Fraud

Bankruptcy fraud is not just a violation of bankruptcy rules—it’s a federal crime. Here’s what offenders may face:

  • Fines: Up to $250,000.
  • Imprisonment: Up to 20 years.
  • Loss of Bankruptcy Protection: Fraudulent actions could result in the dismissal of your bankruptcy case, leaving you vulnerable to creditors.

How to Avoid Bankruptcy Fraud

1. Be Honest and Transparent

Disclosure is key. Provide complete and accurate information about all debts, assets, income, and liabilities.

2. Work with a Trusted Attorney

Your bankruptcy attorney will guide you through the process and ensure compliance with all legal requirements.

3. Avoid Suspicious Financial Transactions

  • Do not transfer or sell assets before filing without consulting your attorney.
  • Keep detailed records of all financial transactions.

4. Review Your Petition Thoroughly

Double-check your bankruptcy petition before signing. Ensure that every detail is accurate and truthful.

 

FAQs About Bankruptcy Fraud

What happens if I forget to list an asset?

If it’s an honest mistake, notify your attorney and the court immediately. Intentional omissions, however, may be considered fraud.

Can creditors report suspected fraud?

Yes, creditors can report suspicious activity to the bankruptcy trustee or court.

What should I do if I’m accused of fraud?

Consult with an experienced bankruptcy attorney immediately to address the allegations.

Final Thoughts: Honesty Is the Best Policy

Filing for bankruptcy is a serious decision that requires full disclosure and transparency. By being truthful and working with a knowledgeable attorney, you can avoid legal pitfalls and achieve a fresh financial start.

Are you considering bankruptcy but worried about making a mistake? Our experienced Kansas City bankruptcy attorneys can guide you through the process with honesty and integrity. Contact us today for a free consultation and take the first step toward financial freedom.