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What is Bankruptcy Fraud?

Millions of Americans are struggling with crushing debt, which is often the result of unemployment, an accident or illness. Fortunately, debtors can get much needed relief by filing a Chapter 7 or Chapter 13 bankruptcy.

When debtors file for bankruptcy, they are required to fill out bankruptcy paperwork, which details all of their assets and debts. When debtors knowingly and intentionally withhold important information from the bankruptcy court, they commit a federal crime known as bankruptcy fraud.

Exempt & Non-Exempt Assets

Whether debtors file a Chapter 7 or Chapter 13 bankruptcy, the goal is to help them experience relief – relief from creditors and debt looming over their heads. Since creditors take the brunt of these losses, the bankruptcy laws were set up in such a way as to help certain creditors receive at least some compensation by letting them take a portion of the debtor’s property.

Debtors get to keep the assets needed to maintain their household; these are called “exempt assets.” Non-exempt assets on the other hand, are considered a part of the bankruptcy estate and can be liquidated to pay back creditors’ claims. In a Chapter 7 case for example, the bankruptcy trustee will liquidate a debtor’s non-exempt assets and use the proceeds to pay back creditors.

Chapter 13 cases are handled differently. With a Chapter 13, the debtor pays off all or a portion of their debts over 3 to 5 years. Through the repayment plan, the creditors receive a share of the debtor’s disposable income in exchange for wiping out their debt.

Committing Bankruptcy Fraud

Most people who file for bankruptcy are honest and have good intentions, but there will always be exceptions. Occasionally, a debtor will try to hide or transfer assets from the bankruptcy court. When this happens, it’s called bankruptcy fraud. Here are examples of bankruptcy fraud:

  • Failing to include an asset on the bankruptcy schedules.
  • Hiding the fact that property was transferred to a friend or family member before the bankruptcy.
  • Providing the bankruptcy court with false documents.
  • Withholding documents from the bankruptcy court.
  • Destroying documents that should be disclosed to the bankruptcy court.
  • At the 341 Meeting of the Creditors, intentionally making a false statement in the bankruptcy paperwork or blatantly lying to the bankruptcy trustee.
  • Having someone help you hide property from the bankruptcy court.

Bankruptcy fraud is a federal crime under 18 U.S.C. Section 157, punishable by a fine and imprisonment. If you’re accused of bankruptcy fraud or any other federal crime, contact our firm to meet with a Plano criminal defense lawyer.