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What is Bankruptcy Fraud?

When an individual files Chapter 7 or Chapter 13 bankruptcy, they experience financial relief under the federal bankruptcy laws. For the Chapter 7 debtor, this often means they get to erase or wipe out thousands of dollars in unsecured debt. This process is not taken lightly – it can come at quite a cost for the debtor’s creditors.

When you file for bankruptcy, you must complete forms detailing your income, your debts, your creditors, your monthly expenses, and your accounts. If you intentionally and knowingly try to hide assets from the bankruptcy trustee, or if you try to transfer assets to a third party in an effort to conceal them from the bankruptcy court, you can be found guilty of bankruptcy fraud.

Exempt Property in a Bankruptcy Case

Under the federal bankruptcy laws, creditors may be entitled to a portion of the debtor’s property. The debtor gets to keep the portion (called the exempt assets) of their assets that are needed to continue working and maintain their household. If the debtor has any surplus property, it is considered to be the “bankruptcy estate.” Meaning, the remaining assets can be liquidated to help pay something to the creditors.

In a Chapter 7 case, for example, the bankruptcy trustee would see if the debtor has any nonexempt property that could be included in the bankruptcy estate to pay off creditors. If so, the trustee would sell that property and distribute the proceeds to the creditors.

Accusations of Bankruptcy Fraud

Considering the number of bankruptcy cases filed each year, the vast majority of debtors are honest and transparent with the bankruptcy court. However, some debtors are less than honest and go great lengths to deceive the bankruptcy court. When a debtor intentionally hides their property from the bankruptcy court, he or she risks being caught and charged with bankruptcy fraud.

Examples of bankruptcy fraud:

  • Intentionally not listing assets on a bankruptcy schedule.
  • Concealing the fact that property was transferred before filing bankruptcy (for example, giving a large sum of cash from a bank account to a friend to hold).
  • Creating false documents or destroying real ones.
  • Withholding a document from the court.
  • Paying another person to hide property from the bankruptcy court.

Learn more about bankruptcy fraud under 18 U.S. Code Section 157 by clicking here.

Facing federal charges for bankruptcy fraud? Contact The Zendeh Del Law Firm, PLLC at once for experienced legal representation.