How to Avoid Bankruptcy Fraud

Bankruptcy fraud can result in prison time.

Individuals who commit bankruptcy fraud can face serious legal consequences such as fines of up to $250,000 or up to five years in prison. According to the IRS, 92 percent of the bankruptcy fraud cases prosecuted in 2009 resulted in incarceration. Unfortunately, some uninformed debtors commit bankruptcy fraud without even realizing that their actions are against the law. If you are considering filing for bankruptcy, it is important to educate yourself on how to avoid bankruptcy fraud in order to adhere to the law and avoid legal trouble.

Instructions

1. Hire a licensed bankruptcy attorney. Although you can file for bankruptcy without an attorney, an attorney can assist you with your bankruptcy paperwork to ensure that you do not unintentionally commit fraud. If your bankruptcy case is a complicated one, an attorney may be a necessity.

2. Disclose all of your assets. Concealing assets is the most common type of bankruptcy fraud. Failing to list all of your assets on your bankruptcy paperwork can result in the court dismissing your bankruptcy. Since you must swear that your paperwork is accurate to the best of your knowledge under penalty of perjury, you can be charged with perjury in addition to bankruptcy fraud if the judge determines that you intentionally concealed assets.

3. Question any individual or organization that promises to save you from eviction or foreclosure. Some companies that promise debt relief for a monthly fee trick debtors into signing documents that allow the scam artist to file bankruptcy in the debtor's name. Once the bankruptcy case is active, the debtor's creditors stop calling. Thus, the debtor believes the scam artist's services are working and continues to pay. This is a common form of bankruptcy fraud and one that can be easily avoided.

4. File for bankruptcy in only one state. Even if you live and work in two different states or own homes in more than one state, filing for bankruptcy in more than one state is fraudulent.

5. Stop making credit card purchases as soon as you decide to file for bankruptcy. Making purchases on your credit cards with the intent to have the debt you accrue wiped clean through bankruptcy is fraudulent behavior. Your creditor retains the right to contest any credit card debt you incurred in the 90 days prior to when you file your bankruptcy petition.

References

• IRS.gov: Statistical Data---Bankruptcy Fraud
• LawyerShop.com: Bankruptcy Fraud
• NOLO: Filing Bankruptcy? Disclose Everything, Hide Nothing

Resources

• U.S. Courts: Bankruptcy Resources
• The Survivor's Club: The Bankruptcy Support Center