Texas Fraud Laws: Bankruptcy Fraud

When you find yourself in debt that you cannot pay off, you can file for bankruptcy to liquidate or reorganize much or all of it. While this legal move is designed to give you a fresh financial start, it can also be fraught with risks if you defraud the court.

This serious misstep can result in you facing significant and harsh legal consequences, notwithstanding a federal jail sentence. You can use file for bankruptcy legally and benefit from its intended purpose by knowing how to avoid bankruptcy fraud before and during your case.

What is Bankruptcy Fraud?

Bankruptcy fraud is a type of white collar crime that carries with it severe federal penalties. It is defined as willfully deceiving or attempting to deceive the bankruptcy court and its officers, including the judge, trustee and lawyers, for your benefit.

Because bankruptcy is always filed in federal court, any fraud committed before or during your case can result in federal agencies, such as the FBI, investigating it and charging you with this offense. Even more, because your lawyer, the trustee and judge can gain access to your financial records, bankruptcy fraud can be relatively easy to prove and prosecute. 

Even so, people may try to commit bankruptcy fraud for any number of reasons. They may fear losing access to assets like their cars or homes, for example. They might also be embarrassed at having to file for bankruptcy and want to conceal it from others.

Regardless of these reasons, people who commit bankruptcy fraud often face going to prison and paying tens or hundreds of thousands of dollars in fines. When you intend to file for bankruptcy, you need to know how to avoid committing bankruptcy fraud if you want to avoid the severe legal penalties that go along with being convicted of it. 

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Types of Bankruptcy Fraud

Bankruptcy fraud can take numerous forms, all of which are illegal and can merit significant penalties under federal law. One of the most common forms of this crime involves hiding or trying to hide assets from your lawyer or the court.

When you file for bankruptcy, you may have to disclose what assets that you have access to and in your possession. These assets can include:

• Checking, savings and retirement accounts
• Life insurance policies
• Vehicles, including recreational vehicles, boats and motorcycles
• Firearms
• Jewelry
• Craft or hobby equipment
• Real estate
• Antiques
• Collectible coins and precious metals

They can also include investments like stocks and bonds that you own. By law, you must disclose that you have these assets in your possession, even if it means that you might have to forfeit them to the court. If you are caught trying to conceal them, you could be charged with bankruptcy fraud.

By that same account, you cannot transfer legal ownership of these types of assets to friends or relatives prior to filing for bankruptcy. This move can be seen as an attempt to defraud the court, and you could be hit with a bankruptcy fraud charge. 

Other types of bankruptcy fraud include:

• Filing for bankruptcy in multiple locations
• Bribing court officials
• Providing false information about yourself, your debt and assets
• Failure to complete legal documents truthfully and on time
• Purposely taking on debt and filing for bankruptcy repeatedly
• Understating the value of your assets

All of these actions are illegal when you intend to file for bankruptcy and have your debts settled through the federal court system. They can also result in legal consequences that can have far-reaching and long lasting ramifications on your life.

These penalties can include having to serve out a term of up to five years in federal prison. You may also have to pay a civil fine of up to $250,000.

It can be difficult or impossible to avoid any kind of penalty if you are suspected of bankruptcy fraud. In fact, the U.S. has over 70 federal tasks force groups that investigate, charge and prosecute this crime. These agencies have the right to charge people for simply attempting to commit bankruptcy fraud, even if the fraud itself was not successful. With that in mind, it can be essential that you know how to avoid committing bankruptcy fraud if you want to avoid serving time in federal prison and paying a steep fine.

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How to Avoid Bankruptcy Fraud

Avoiding bankruptcy fraud is as simple as resolving to tell the truth to the court, comply with all of the requirements for this action and accepting that you may be subject to circumstances that can be challenging for some people to accept. You also need to accept that you may have to give up ownership to some of your most prized assets, including a vacation house, second car or jewelry that you inherited if it is valued at over a certain dollar limit.

You also need to resolve to disclose what assets that you own and have access to, even if it means that you have to turn over the titles to them. Most bankruptcy courts allow you to keep your primary home and at least one vehicle. You can also keep assets that do not have enough monetary value to sell and use to satisfy some or all of your debts.

You likewise can avoid being accused of and charged with bankruptcy fraud by not filing simply to wipe out bad business dealings. You also need to complete all of the legal paperwork that your attorney sends you on time and as truthfully as possible. If you are not sure about how to complete it or what information to put on it, you can ask your attorney for help.

Finally, it is imperative that you be truthful with your attorney, even if you are embarrassed about having to file for bankruptcy and you want to avoid other people, such as your coworkers or neighbors, knowing about it. You should also avoid filing multiple times over and over, as this action can be interpreted as you taking advantage of the court and trying to commit bankruptcy fraud.

Bankruptcy fraud is a serious white collar crime that carries with it daunting and difficult punishments. It is charged at the federal level and can result in you being sent to a federal prison. You also may have to pay off thousands of dollars in fines.

As serious as it is, it is also relatively easy to avoid. You can start by hiring an experienced bankruptcy attorney like Greg Tsioros to help you file your case and disclose truthful and prompt information to the court.