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Not being totally above-board when filing for bankruptcy can land you in serious trouble. Your bankruptcy can be denied, you may be charged a fine, and in some cases, you could be criminally charged.
The bankruptcy paperwork requires you to document all your currently-owned property as well as any other assets you may have given to other people within a certain time period. Knowingly omitting any of the required information on the bankruptcy documentation for purposes of denying creditors money you owe them could lead you to a fraud conviction.
Relief from the debt that has become all-encompassing in your life is a benefit of filing for bankruptcy. Your creditors take the hit from your filing by agreeing to accept a smaller amount of the debt owed. You can keep, in the form of an exemption, property necessary to live and work (for example, in many cases your home and a car).
In a Chapter 7 bankruptcy, the rest of your assets go into the bankruptcy estate and a trustee sells these assets to pay off your creditors.
In a Chapter 13 bankruptcy instead of selling your property, you will be required to pay your creditors the nonexempt property’s value over a period of three to five years.
What Constitutes Bankruptcy Fraud?
If you intentionally try to not disclose property, you may find yourself accused of bankruptcy fraud. Examples of potential fraud include:
- Giving the trustee or bankruptcy court false documents
- Neglecting to report an asset on the bankruptcy schedule so that it won’t be sold and the proceeds given to the creditors
- Not disclosing that you transferred property just before filing for bankruptcy
- Withholding or destroying pertinent documents
- Giving false information to the bankruptcy trustee when meeting with creditors
- Hiding property from the court by paying an individual to do so
What are the Penalties for Bankruptcy Fraud?
If you knowingly make a false statement or purposely omit information on the bankruptcy filing documentation, you may be subject to harsh penalties. You could be fined up to $250,000 and be sentenced to up to 20 years in prison.
Fraud Prior to Filing for Bankruptcy
Listed below are examples of fraudulent actions that occur prior to filing for bankruptcy protection. If any of these situations present themselves, it may be cause for the court to not discharge that specific debt.
- Making purchases using existing credit cards not intending to pay the charge
- Taking cash advances from credit cards or purchasing expensive items just before filing for bankruptcy
- Changing your financial papers to falsely list your worth
- Writing checks you know will not clear
- Lying about your assets or income on credit card applications to obtain additional credit
If you are thinking of filing for bankruptcy, it is important to speak with an experienced bankruptcy attorney to discuss the process and the ramifications of filing either Chapter 7 or Chapter 13 bankruptcy. The bankruptcy lawyers Memphis, TN offers are knowledgeable about the process and can advise you of what your next steps should be.
Thank you to our friends and contributors at Darrell Castle & Associates, PLLC for their insight into bankruptcy and fraud.