What Types of Fraud Exist in Bankruptcy?
A fraud regarding debt is one where debt is obtained knowingly through false pretenses upon which the creditor relied to grant the credit; alternatively, taking on debt with no intention on repaying also counts, i.e., running up purchases. 11 U.S.C. § 523.
Attempts to discharge such debt should expect heavy challenges by creditors and result in higher legal costs. If the creditor is successful, then that debt will not be discharged. Read on for examples.
Another fraud is leading up to – or during – bankruptcy where the debtor knowingly and fraudulently falsifies or conceals information during the Bankruptcy process. 18 U.S.C. §§ 152, 157. Read on for examples.
It is critical that debtors be aware of such scenarios because they could irreversibly damage a debtor’s bankruptcy case and result in punishment.
What are Some Examples of Fraud Debt?
A common example is misrepresenting your income or assets in order to obtain a loan. Another example is making exorbitant purchases on credit, usually not for life essentials, shortly before filing bankruptcy.
If you are unsure of whether your debt may fall under this category, speaking to an experienced Bankruptcy attorney can provide some clarity. Our consultations are free of charge. Call the Law Offices of Lee M. Perlman at 856-751-4224 to request a consultation about how bankruptcy or other debt resolution services might help you.
What are Some Examples of Fraud Leading up to – or During – Bankruptcy?
A few examples include not reporting assets, transferring assets without the court’s permission, transferring assets for less than fair market value, inaccurately reporting income, and paying back select creditors (i.e., your friends or relatives), just to name a few.
Remember, when you submit information on your petition, it is under oath. Knowingly providing false information will jeopardize your case and leave you subject to fines and imprisonment.
Tell Me About Transferring Assets Before Bankruptcy
A common example is transferring ownership of one’s home or car in the lead up to filing bankruptcy. This can be considered a Fraudulent Transfer. It is problematic because it is dishonest and will forfeit any exemptions that could have been used to keep those assets in your possession. Instead, the Trustee will be able to pursue the transferred assets, unwind its transfer, and then sell it to pay back creditors.
This applies to real estate, cars, and anything else of value.
What About Repaying Family or Friends?
Do not do it leading up to filing bankruptcy. Owing money to family and friends is no different than owing money to your other creditors because the Bankruptcy Code requires all similarly situated creditors receive equal treatment. That means no preferential payments. Debt owed to family and friends must be listed in your Bankruptcy filing and will likely be discharged.
Remember, a discharge only means that you are no longer legally obligated to pay that debt. You can certainly choose to pay it back, on your own, after the Bankruptcy process has concluded.
Not following the rules will result in the Trustee pursuing the money repaid to your family and friends. That money could otherwise be exempt from collection if you follow the rules.
What if I Already Repaid Family or Friends?
Tell your attorney, immediately. Otherwise, the Trustee will pursue these re-payments from your family and friends and deposit them into the Bankruptcy Estate, for distribution amongst your creditors. Any exemptions that could have otherwise kept those funds for you will also no longer be applicable.
Take a moment and imagine your family and friends receiving notice that they are being sued for the money you repaid them. That’ll make for quite the festive holiday reunion!
Let’s avoid that situation and be transparent with the process. The sooner your attorney knows, the sooner corrective action can be taken to avoid such an uncomfortable set of circumstances.
Can I Repay a Credit Card to Keep It Out of The Bankruptcy Process?
Unfortunately, the answer is still no. Remember, your creditors must be treated equally, and any such payment will simply be taken back by the Trustee. That credit card debt will likely be discharged in the Bankruptcy process, and you’ll start rebuilding credit afterwards.
Even if you had no balance, that credit line would still be closed as the creditor would learn of your bankruptcy filing.
The good news is that many of our clients successfully rebuild their credit within one year – to a year and a half – of their Bankruptcy discharge.
What If I Did Not Know About an Asset in Which I Have an Interest?
Mistakes happen, such as such as not having known of your interest in an asset, e.g., an inheritance. Make sure to report this information to your attorney as soon as you find out.
Rest assured, the Bankruptcy Trustee will uncover this, so it is best to be thorough and remain transparent with your attorney.
How Can I Avoid Bankruptcy Fraud?
Always remain honest and transparent with your attorney. When in doubt, disclose to your attorney. The more your attorney knows, the better they can prepare your case and maximize exemptions in the Bankruptcy Code, to your benefit. That can result in more of your property being kept by you.
What Should I Do Next?
We strongly recommend reaching out for a free consultation.
The Bankruptcy Code is incredibly complex, and we will need to conduct a brief review of your income, assets, debts, and other circumstances.
We have decades of experience in Bankruptcy, but we must reaffirm the importance of being transparent and through throughout the process. Only then can we best strategize on how to retain what’s yours. We have helped countless clients retain their possessions and walk away from bankruptcy with their debt wiped clean and a fresh start waiting ahead.
How Can I Get in Touch?
Call the Law Offices of Lee M. Perlman at 856-751-4224 to request a consultation about how bankruptcy or other debt resolution services might help you.
Please feel free to share this post with anyone you know who may be falling behind on payments.
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