Bankruptcy Mistakes Versus Bankruptcy Fraud

When you file for personal bankruptcy, whether you are filing for Chapter 7 or Chapter 13 bankruptcy (or in some cases Chapter 11 bankruptcy), it is important to understand that there are specific rules you must follow. Indeed, filing for consumer bankruptcy is a complicated process, and it is essential to provide all required documentation and to fill out schedules appropriately. Since consumer bankruptcy is so complex, it is always a good idea to work with an experienced bankruptcy lawyer to ensure that you follow all steps correctly.

Yet it is also important to know that making an error on your materials is distinct from bankruptcy fraud. While a mistake in your filing can still prevent you from being eligible for a discharge, bankruptcy fraud typically results in much more serious consequences. We want to be clear about the differences between errors in your bankruptcy materials and bankruptcy fraud.

What is Bankruptcy Fraud?
Bankruptcy fraud can take many forms, and it typically includes any actions taken by a debtor to avoid transparency. Debtors can engage in bankruptcy fraud in order to conceal assets, as well as to receive multiple bankruptcy discharges at a rate that the U.S. Bankruptcy Code does not allow. According to the Cornell Legal Information Institute (LII), bankruptcy fraud typically takes one of four forms:

  • Debtor intentionally hides assets so that the assets do not have to be liquidated;
  • Debtor intentionally files false forms, or provides incomplete or inaccurate information on bankruptcy forms;
  • Debtor files for bankruptcy multiple times by providing false information or by filing in multiple jurisdictions; or
  • Debtor attempts to bribe a court-appointed bankruptcy trustee.

Fraud can also include destroying property so that it is not liquidated, or making a false statement during a bankruptcy proceeding or to the bankruptcy trustee. According to the LII, almost 70% of all bankruptcy fraud cases fall into the first category listed above—the debtor attempt to hide assets to avoid having the assets liquidated. There are a few different ways in which a debtor can hide or conceal assets, such as:

  • Not listing the assets or revealing the assets on bankruptcy forms; and/or
  • Transferring assets to friends, family members, or other individuals so that the bankruptcy court cannot find them.

Debtor’s Intentions and Bankruptcy Mistakes
It is important to keep in mind that a bankruptcy trustee can only liquidate property that the debtor lists or reveals on bankruptcy forms (also known as the property that makes up the bankruptcy estate). If a creditor believes that a debtor has committed fraud, the creditor can initiate an adversary proceeding to object to a bankruptcy discharge. If a court determines the debtor did indeed commit bankruptcy fraud, there are serious consequences. Not only will the court refuse to discharge the debt, but the debtor also may be subject to criminal penalties.

Making an honest mistake on a bankruptcy form or filing is not necessarily fraudulent. In order to commit bankruptcy fraud, a debtor must intend to defraud. When a debtor makes an honest mistake, or provides inaccurate information by error, that type of mistake likely will not be seen as bankruptcy fraud. However, the debtor still may be subject to a bankruptcy fraud investigation to determine the debtor’s intent.

Seek Help from an Oak Park Bankruptcy Lawyer
It is best to work with an Oak Park bankruptcy attorney to ensure that there are no errors in your bankruptcy forms or filings that could suggest fraud. If you need help, an advocate at our firm can speak with you today. Contact the Emerson Law Firm for more information.


See Related Blog Posts:

Creditor Objections to a Chapter 7 Bankruptcy Discharge

Understanding Authorized Users and Consumer Bankruptcy

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