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What is Bankruptcy Fraud and What Are its Consequences?

White Collar Fraud

Although bankruptcy offers you a fresh start by discharging most of your debts, this form of relief requires the utmost good faith on your part. It’s critical that you fully and accurately disclose all assets, debts and other financial information to the court. Failure to do so can have significant repercussions that include dismissal of your case and the inability to have undisclosed debts discharged. Moreover, if you attempt to conceal property or you intentionally make false statements, you could be charged with bankruptcy fraud.

Bankruptcy fraud is a criminal offense. A conviction can result in a fine of up to $250,000 and a sentence of up to five years in prison. To prove fraud, the prosecution must establish that you acted knowingly and intentionally to deceive the bankruptcy court, the trustee or any party with an interest in the case. Fraud may be committed in different ways, such as by:

  • Concealing assets to avoid forfeiture — The majority of bankruptcy fraud cases involve hiding assets or engaging in fraudulent conveyances. Gifting property to a friend or family member with the intention of keeping it for yourself is one type of fraudulent transfer. Another is the sale of assets at far below market value in an arm’s-length transaction.
  • Submitting forms that are incomplete or false — When you file for bankruptcy, the court requires full disclosure concerning your assets and debts. Hiding an ownership interest in a business or knowingly making false statements on your bankruptcy forms can be considered fraud.
  • Concealing other bankruptcy filings — Using false names or filing for bankruptcy in several jurisdictions without disclosure is a type of bankruptcy fraud. Typically, these schemes also result in additional criminal charges, such as identity theft.
  • Bribing a court-appointed bankruptcy trustee — Attempting to gain favor with the bankruptcy trustee or a court official through payments or promises of reward is a crime in itself as well as being a fraud on the court.

Bankruptcy fraud can also arise if you engaged in reckless financing prior to filing for bankruptcy. Maxing out credit cards or taking on second mortgages in the expectation of seeking bankruptcy protection may be considered fraud.

A judge may dismiss bankruptcy fraud charges if you can prove that the failure to report an asset or debt was inadvertent. You can also seek to prove that transfers of property and acquisitions of credit prior to filing bankruptcy were done in good faith.

The best way to deal with bankruptcy fraud is to avoid conduct that can get you into trouble. If you are considering filing for bankruptcy protection, the Law Offices of James C. Zimmermann can provide valuable guidance. With offices conveniently located in Hackensack, Vernon, Wayne, Pompton Lakes, and Nutley, we help clients in New Jersey find effective solutions to their financial problems. For a free consultation, call 973-764-1633 or contact us online.

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