Bankruptcy fraud is a federal crime that occurs when someone knowingly provides false information, hides assets or takes improper steps during the bankruptcy process to gain financial advantage. These charges are serious and can lead to steep fines and time in federal prison if the court finds that actions were taken with intent to deceive.
While bankruptcy is designed to offer individuals a fresh financial start, the process is governed by strict disclosure rules. Mistakes happen, but federal authorities often examine filings for inconsistencies or omissions that suggest fraud. Even small errors can raise red flags, especially if they appear intentional or part of a larger pattern.
Mistakes that often lead to bankruptcy fraud red flags
Some common actions or oversights can appear fraudulent to investigators, even if there was no malicious intent. Below are examples of conduct that might lead to an investigation or criminal charges:
- Hiding or failing to report assets: Not listing property, vehicles, inherited items or bank accounts can make it appear that someone is trying to shield assets from creditors.
- Transferring property before filing: Moving money or signing over property to a friend or relative shortly before filing can be seen as an attempt to avoid disclosing that asset.
- Lying about the value of possessions: Underestimating the value of cars, collectibles or jewelry may appear to be an effort to prevent those items from being liquidated.
- Filing for bankruptcy repeatedly: Submitting multiple bankruptcy filings in a short time can be flagged as abuse of the system, especially if debts continue to grow without a repayment effort.
- Using credit cards or loans right before filing: Large charges or cash advances taken immediately before filing may look like an attempt to erase debt without repayment, especially for non-essential purchases.
- Inaccurate or incomplete paperwork: Leaving sections blank or misreporting financial details on bankruptcy forms can lead to closer scrutiny, especially if the omissions involve significant figures.
Being accused of bankruptcy fraud does not always mean that there was criminal intent. However, because the penalties are so severe, obtaining legal guidance as soon as possible can be helpful when facing questions about your filings or financial disclosures.
