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What is a Bankruptcy Fraud? & What are the two types of White Collar Crimes?

Declaring bankruptcy gets the only option when you’re overwhelmed by your debts. Bankruptcy, in some cases, helps you reduce or get rid of your debts, save your homes and keep off the bill collectors. 

Declaring bankruptcy can damage your credit score. It, in turn, can hamper your ability to borrow in the future and even makes it difficult to get a job.

In bankruptcy, a debtor gets declared legally insolvent either by a creditor or his account. The property of the debtor then gets liquidated and distributed among his creditors to pay his debts.

When a debtor falsely claims for bankruptcy with an intent to hide it, he/she gets committed to bankruptcy fraud, a federal offense.

What is Bankruptcy Fraud?

Bankruptcy, a white-collar crime, gets defined in broad terms. Anyone, either debtors, bankruptcy attorneys, or even creditors, can commit such frauds. 

Typically, bankruptcy fraud can get defined as an act of falsifying information when filing for bankruptcy. In the U.S, committing bankruptcy fraud could result in case dismissal and the court may impose a fine. For severe cases, a hefty fine and a prison sentence can get imposed.

So, what are the two types of white-collar crimes? Two types of bankruptcy fraud involve:

  • civil fraud
  • criminal fraud. 

Civil bankruptcy fraud does not amount to the criminal act but includes serious consequences. 

  • The punishment for civil fraud may vary according to the facts of the case. For example, the filer might lose exemptions’ protection. And once the asset loses its protected status, it will then belong to the bankruptcy estate. The trustee will then have the right to sell the asset and repay creditors.
  • Another example of civil bankruptcy includes serial filing. The filer abuses the bankruptcy court system by submitting multiple bankruptcy filings with no intent to finalize any. The filer may then get penalized by preventing from filing for bankruptcy for a certain period.
  • Criminal bankruptcy fraud involves a more severe offense and can result in a prison sentence. It may include hiding assets or concealment of assets. If someone helped the debtor hide the purchase, the person may also subject to criminal charges. Get more information about what are the two types of white-collar crimes in bankruptcy fraud, visit Getlegal.com.

Forms:

When filing for bankruptcy, the filer has two primary options- liquidation or reorganization. Chapter 7 liquidation bankruptcy, discharge your debts in exchange for the sale of your non-exempt assets. 

Chapter 13 reorganization, structure your debts in a manageable repayment plan which lasts for 3 – 5 year. 

Between these two bankruptcy options, there are many chances of fraud. But, typically, some fraudulent actions make up the most common cause of case dismissal and legal actions.

Some examples of bankruptcy fraud may include:

  • Concealing or Hiding Assets:

One of the most common types of bankruptcy fraud in Chapter 7 includes assets hiding. In chapter 7, some filers can lose assets in liquidation. They tempt to hide the assets.

To hold onto the asset in bankruptcy proceedings, the debtor tries to hide valuable assets. It also prevents the bankruptcy court from finding out what the debtor exactly owns.

After the filer files for bankruptcy, the court lump all the property of the filer together, which is called bankruptcy estate, it helps the court to know how much the filer can pay to the creditors or as a part of the repayment plan. 

The debtors often hide some of the property from the court to prevent the court from using it to pat off the creditor.

  • False filing or incomplete forms:

It’s another form of bankruptcy fraud, in which the filer intentionally files inaccurate or incomplete documents.

Bankruptcy filing requires a complete and correct list of all assets, debts, and current financial status of the debtor.

Accidentally committed action cannot get as fraud. For example, if you forget to mention information about a gifted car that you don’t use, and it lies in the garage of your friend, it isn’t a bankruptcy fraud. 

Criminal fraud may involve hiding assets intentionally, misleading the court, or taking actions you know are fraudulent. So, intention concealing the care to hide in your friend’s garage would be a bankruptcy fraud, and forgetting the car was given as a gift would not be.

So, if you intentionally give false information, you may get charged with perjury, resulting in criminal charges being filed against you.

  • Bribery:

It’s rare, but it happens. When the debtor tries to bribe the creditor, bankruptcy trustee, it gets bankruptcy fraud.

Bankruptcy trustees get appointed by the court to oversee your case. It’s essential to maintain a professional relationship with the trustee. It helps to avoid any misconception of bankruptcy fraud.

Any bribery done by you or on your behalf will lead to the dismissal of your case. Depending on the circumstances, the punishment could get more severe.

  • Multiple Bankruptcy Filing:

If you file several cases with different details or in other states either at the same time or at different times, it will get considered bankruptcy fraud. 

To benefit from exemptions in some states, the filer uses different names and information while filing in other states. 

The intentional filing of multiple bankruptcy cases can get you in trouble. So, it’s essential to adhere to court-regulated timelines between the cases and give the requested information. It will prevent the case from dismissal. Click here to know more about Bankruptcy fraud.

Consequences of Bankruptcy Fraud:

Bankruptcy fraud, a severe federal offense, can result in serious legal consequences. 

Typically it involves a sentence of up to 5 years imprisonment, a fine of $250,000, or both.

So, while filing for bankruptcy, keep in mind that any unintentional errors may or may not get considered bankruptcy fraud. It becomes essential to provide the most accurate and complete information.

When any bankruptcy fraud is determined, the court has several options:

  • Dismissal of the bankruptcy case: The bankruptcy court can dismiss the case on its motion or the creditor’s motion or the trustee. The judge may also impose restrictions that would prohibit from filing a new bankruptcy case for some time.
  • Deny Discharge: The court can deny overall bankruptcy discharge or the discharge of a particular debt. The denial of discharge allows the creditor to collect the debt after the case.
  • Other Remedies: The bankruptcy code gives the judge the option to take any decision necessary in the bankruptcy case, including the power to hold the party in contempt of court.

Finding contempt may come with a fine and may also include an injunction to stop someone from doing a particular action. For example, the court can deny creditors’ claims and hold the creditor for filing a false claim.

Summary:

It’s essential while filing for bankruptcy, and you should enlist all your assets and liabilities. If you fail to do so, it could result in violations of bankruptcy laws and serious consequences despite being civil or criminal fraud. Bankruptcy fraud can also lead to jail terms and hefty fines.

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