Bankruptcy fraud is a federal crime in the US, with three methods of committing it: asset concealment, multiple filings, and petition mills. Convictions can result in a fine of up to $250,000 USD and/or up to five years in prison. Changes to bankruptcy law have resulted in an increase in cases of asset concealment fraud.
In the United States, bankruptcy fraud is a federal crime. Bankruptcy is a legal process that allows a business or individual to be discharged from all its debts due to inability to pay. There are multiple types of bankruptcy, but they all have the same definition of what types of actions constitute bankruptcy.
There are three methods of committing bankruptcy fraud: asset concealment, multiple filings, and petition mills. The number of cases increases in proportion to the number of bankruptcy filings each year. Convictions for this offense can result in a fine of up to $250,000 United States Dollars (USD) and/or up to five years in prison.
Asset concealment is the most common type of bankruptcy fraud. This type of fraud occurs when the debtor hides their assets during the filing phase of the bankruptcy process, in an attempt to prevent them from being liquidated. Debtors can delist assets, transfer ownership to family or friends, and move assets to offshore accounts.
Multiple filing occurs when debtors file bankruptcy in more than one state. They present incomplete lists of their assets in both filings, in an attempt to avoid liquidation of those assets. This type of bankruptcy fraud also covers situations where the debtor files for bankruptcy under a false or false name.
A petition mill is a particularly cruel type of bankruptcy fraud. Unlike asset concealment or multiple presentations, the fraud is not perpetrated by the debtor, but by a third party. This is common in poor neighborhoods and takes advantage of people facing eviction.
In a petition scheme, the debtor typically responds to a company advertisement that will help tenants avoid eviction from their rental accommodation. The firm takes all of the debtor’s information and charges large fees, claiming that they are fighting the eviction. In reality, they filed for bankruptcy, ruining the debtor’s credit and depleting cash resources.
Changes to bankruptcy law have resulted in a significant increase in the number of bankruptcy fraud cases involving concealment of assets. Under the new law, a debtor cannot file for Chapter 7 bankruptcy if their disposable income is more than $183.50 per month. He is forced to file for Chapter 13 bankruptcy.
Under Chapter 7, all debts are discharged, while under Chapter 13, the debtor must make monthly payments on a portion of their debt for three to five years. Once this period is complete, the debtor is discharged from bankruptcy. Bankruptcy remains on the credit file for 10 years from the date of discharge.
To avoid Chapter 13, debtors try to report their income for the last six months. They increase their expenses to reduce the amount of reported disposable income. These steps fall under asset concealment and are considered bankruptcy fraud.
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