Bankruptcy, by definition, is when a debtor is declared - either by creditors or his own account - legally insolvent. His property is liquidated and divided among his creditors to pay his debts. But when a debtor falsely claims bankruptcy, attempts to conceal his assets, launches petition mills or files multiple claims, he is committing bankruptcy fraud - a federal offense.
Types of Bankruptcy Fraud
Concealment of assets, petition mills, and multiple filings are the most common types of bankruptcy fraud.
Concealment of Assets
Concealment of assets accounts for nearly 70 percent of all fraudulent bankruptcy cases filed by individuals. This type of fraud occurs when a person purposely fails to list every one of his assets on his bankruptcy claim, knowing that creditors cannot liquidate valuables of which they are not aware. Similarly, business owners frequently conceal assets when filing for bankruptcy - they transfer money or properties to their relatives’ or associates’ names so that the assets cannot be confiscated.
Petition mills - schemes that claim to help keep financially strapped tenants from eviction - are on the rise in the United States, particularly in urban neighborhoods with high immigrant or poor populations. The scheme begins when a rental-property tenant answers a local newspaper listing or poster advertising a so-called typing service, which supposedly advises tenants on how to avoid eviction. However, without informing the tenant, the typing service instead files bankruptcy in the tenant’s name. It then charges outlandish fees and drags the case out for months. While the tenant thinks he’s getting much-needed help, the typing service is draining his savings, ruining his credit, and merely postponing his inevitable eviction.
Lastly, multiple filings take place when individuals file for bankruptcy in more than one state, using their real names and information (such as Social Security numbers), false names and information, or a combination of the two to file the claims. The filers tend to list the same assets on each fraudulent claim but deliberately fail to include every asset. This, like concealment of assets, fraudulently protects their valuables from total liquidation when debts are paid.
Bankruptcy Fraud Punishments
Bankruptcy fraud, a felony, carries a sentence of a fine of up to $250,000 and/or five years in prison. Defendants will be booked according to standard criminal procedure and will have the opportunity to retain a criminal law attorney.