Committing fraud during bankruptcy can result in serious consequences. You can be denied a bankruptcy discharge, fined, or even face criminal charges. Filing for bankruptcy is an honest way to gain a fresh start. However, you must play by the rules. Any dishonesty during the bankruptcy process could rise to the level of fraud. Indiana bankruptcy attorney, Chris Arrington, will discuss bankruptcy fraud and how to avoid it.

Property Exchange in Liquidation Bankruptcy

Filing for bankruptcy can free you from overwhelming debt, but it comes at a cost to your creditors. For that reason, bankruptcy law attempts to mitigate the loss to creditors by giving your creditors a share of your nonessential assets in exchange for wiping out your debt. You must disclose all property that you currently own (including asset transfers) to the bankruptcy trustee during the bankruptcy process. You will be allowed to exempt some of your property, but you cannot hide property, sell it on the cheap, or otherwise defraud the bankruptcy process. 

In Chapter 7 bankruptcy, the bankruptcy trustee sells nonexempt property and distributes the proceeds to your creditors. In Chapter 13, the trustee doesn’t sell your property. Instead, you’ll pay the value of the nonexempt property to creditors via a three- to five-year repayment plan. 

Creditors are entitled to receive certain property or payments. That’s part of the exchange for wiping out your debt. Hiding assets or intentionally omitting required information on bankruptcy paperwork can be considered bankruptcy fraud. 

Fraud That Begins Before Filing for Bankruptcy

Sometimes, fraud occurs within the bankruptcy filing itself. Other times, it can occur before the bankruptcy filing. This can occur when a filer tries to erase a prior bad act using the bankruptcy process. Below are some examples of how bankruptcy fraud can occur before a bankruptcy has been filed.

• Misrepresenting assets or income on a credit or loan application or otherwise obtaining credit under false pretenses.
• Falsifying financial documents used to support a request for credit.
• Purchasing items on existing credit with no intention of repaying the debt. This is proven by showing that the debtor lacked the ability to pay at the time of the purchase. 
• Buying expensive items or taking out a lot of cash shortly before filing for bankruptcy (this is known as presumptive fraud).
• Knowingly writing a bad check.

It’s important to understand that the bankruptcy trustee works alongside the creditors and is paid by the creditors. The more assets they are able to find, the more they get paid. If a creditor begins asking uncomfortable questions during the 341 meeting of creditors, the trustee will likely facilitate their inquiry because they have a vested interest in the outcome. If the trustee finds that you have defrauded the bankruptcy process, they can report the matter to law enforcement, and formal charges may be filed against you.

Talk to an Indiana Bankruptcy Attorney Today

Chris Arrington represents the interests of debtors in Chapter 7 and Chapter 13 bankruptcy. Call our office today to schedule an appointment, and we can begin discussing your path to financial freedom right away.