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An overview of bankruptcy fraud and penalties

On Behalf of | Apr 8, 2022 | White Collar Crimes

White-collar crimes take their name from the most common offenders, people in respectable business sectors. An example of a white-collar crime in Vista, California, includes bankruptcy fraud commonly committed by consumers.

Types of bankruptcy fraud

Bankruptcy fraud is typically a nonviolent crime, which is a usual trait of white collar crimes. Bankruptcy fraud occurs when the consumer knowingly omits information or uses deceit to qualify for something they don’t.

A common form of bankruptcy fraud is hiding assets because Chapter 7 requires selling nonexempt assets to pay creditors. They may attempt to sell them, transfer them to a third party, or pay someone to hide them. However, asset transfers aren’t always illegal prior to a bankruptcy, if transfers occurred more than three years before filing.

A consumer could raise red flags if they make expensive purchases on credit or take a cash advance 90 days before filing. If they had no intention of paying the debt back, it is considered taken in “bad faith”, and counts as fraud.

Bankruptcy fraud charges and penalties

A consumer commits criminal bankruptcy fraud if they destroy important paperwork, lie in court, or hide assets. It also includes bribing a trustee, taking a bribe, embezzlement of estate assets, and opening a case in another consumer’s name.

Many civil bankruptcy fraud cases involve creditors filing an adversary case against a consumer for suspected fraud. Civil penalties usually include losing discharge rights, meaning the filer forfeits a discharge, and losing exemptions on exempt property. Criminal penalties may include up to a five-year jail term, up to a $250,000 fine, and/or probation.

A simple mistake on a form isn’t usually considered fraud if it wasn’t done on purpose. While many Chapter 7 cases are simple, using professional assistance can reduce presumptions of fraud.