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What is Bankruptcy Fraud?

Bankruptcy fraud is considered a federal crime. It occurs when a bankruptcy petitioner files a dishonest petition or otherwise tries to defraud the bankruptcy court. Bankruptcies are complicated legal matters, and it is, therefore, preferable to have an attorney handle your bankruptcy filing than to file the petition alone. Danville, IN bankruptcy attorney Chris Arrington discusses bankruptcy fraud below (and how to avoid it!).

What is Chapter 7 Bankruptcy Fraud?

In Chapter 7 bankruptcy, it may be possible that you have to surrender some of your property to repay your creditors. While this is generally not a fun experience, and it may be tempting to “forget” that you own some property, such an omission will cause the court to wonder whether or not you are committing bankruptcy fraud. 

During a Chapter 7 bankruptcy, your unsecured debt (such as credit card debt) is discharged. However, this comes at a cost to creditors. To minimize this loss, the bankruptcy process allows you to keep only assets that you can protect with Chapter 7 exemptions. Your creditors are entitled to receive the value of nonessential assets, and depriving them of this money is often considered fraud for bankruptcy.

Another example of bankruptcy fraud would be transferring an asset from your ownership to a friendly third party who would take on ownership of the asset. Once your bankruptcy has been processed, the friendly third party will then transfer the asset back to you. The court can void any transactions that occur within a few months of your bankruptcy petition and will not look favorably on valuable assets being sold for lower-than-market rates. 

What is Considered Bankruptcy Fraud?

Any effort to pay a creditor less than what they are owed is considered an abuse of the bankruptcy process. This can include hiding assets, knowingly omitting required information on your bankruptcy paperwork, or inappropriately using the bankruptcy process to the detriment of the creditor. All of these actions can be considered bankruptcy fraud. 

Additionally, sometimes bankruptcy fraud is less obvious. An individual who, for example, overstates their income on a credit application and now wants to discharge the debt in bankruptcy can be accused of bankruptcy fraud. Anyone who, for example, omits valuable possessions or assets on their bankruptcy application would also be committing bankruptcy fraud. 

How to Avoid Bankruptcy Fraud

If you are filing for bankruptcy, you want to avoid even the appearance of fraud. Having a skilled Chapter 7 bankruptcy attorney handle your petition is the best way to avoid the appearance of bankruptcy fraud. In some cases, bankruptcy fraud can be considered a crime. In other cases, you may not be able to discharge a debt if you committed some form of fraud. The bankruptcy process does not allow individuals to discharge debts they acquired fraudulently. 

Talk to a Danville, IN, Chapter 7 Bankruptcy Attorney Today

Chris Arrington represents the interests of those seeking to file for bankruptcy in Indiana. Call our office today to schedule an appointment and learn more about how we can help. 

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