Bankruptcy Fraud

Fraud is any attempt to misrepresent or make false statements to the bankruptcy court or its representatives concerning any pertinent facts that may help the court legally apply federal laws in a debtor's case. Bankruptcy fraud is a felony, and if a debtor is convicted for committing bankruptcy fraud, the debtor can spend up to five years in prison for each offense and have to pay up to $250,000 in fines for each separate act of fraud. In addition, any debtor convicted of committing bankruptcy fraud may lose their right to a bankruptcy discharge and/or the ability to ever file for bankruptcy protection in the future.

There are different kinds of fraud a debtor can commit in the bankruptcy process. Committing bankruptcy fraud can be as simple as lying under oath during a Creditor's Meeting or intentionally misrepresenting facts on any schedule the debtor submits with their bankruptcy petition.

Probably one of the more sinister types of bankruptcy fraud occurs when a debtor tries to hide assets from the bankruptcy court. Transferring ownership of property to a friend or relative is one of the most common types of bankruptcy fraud. Bankruptcy courts are like the IRS. When it comes to a debtor's assets, the court normally supersedes other governing entities and will aggressively pursue assets they believe should be part of the debtor's bankruptcy estate. Nevertheless, they are guided by federal, state and bankruptcy laws.

Bankruptcy fraud should not to be confused with the term "abuse" (see Abuse). Bankruptcy fraud is a criminal matter, and abuse is a civil matter. Like any other felony, a debtor accused of bankruptcy fraud will have to stand trial, and the state will have to prove intent to commit bankruptcy fraud. Bankruptcy abuse, however, is a civil matter, and the creditor or trustee has to convince the bankruptcy judge of the facts of the case. Debtors found to abuse the bankruptcy system may face civil penalties.