In any discussion of filing for bankruptcy, it is essential that clients be warned to be careful of committing bankruptcy fraud. What is bankruptcy fraud? And why is bankruptcy fraud so dangerous?
What is bankruptcy fraud?
Bankruptcy fraud occurs when someone attempts to shield assets from liquidation in the bankruptcy, hide income from garnishments, submits false valuation paperwork or enters fraudulent claims. Bankruptcy fraud includes concealing assets, undervaluing assets, failing to report income or omitting assets or claims from the bankruptcy court. Omitting debts owed to you by family members, not mentioning the likelihood of receiving an inheritance or lawsuit settlement in the next few months or giving items to family to keep from you are also considered bankruptcy fraud. Anything that overstates what you owe, understates what you own or prevents creditors from being paid as much as legally allowed is fraud.
Why is bankruptcy fraud so dangerous?
If the court or your creditors find out that you have committed bankruptcy fraud, your bankruptcy petition will be thrown out. Bankruptcy petitions are often tossed out because someone filed the wrong type of bankruptcy for their situation, such as a small business owner filing Chapter 12 bankruptcy. Some cases are thrown out because someone filed too soon since their last filing. Yet in these cases, the petitioner can re-file for bankruptcy again. However, if the bankruptcy case is thrown out due to allegations of bankruptcy fraud, you lose the option of filing again.
Lying on a bankruptcy petition is also perjury. You risk criminal charges simply for choosing to lie on the form. Accidental omissions may be challenged by creditors as acts of fraud, especially if there are significant errors on the bankruptcy petition. Speak with a Honolulu bankruptcy lawyer immediately if you are facing allegations of bankruptcy fraud. The issue may be resolved with an amended bankruptcy return, but the issue is avoided entirely if you seek the help of a Hawaii bankruptcy attorney before filing for bankruptcy.
If your bankruptcy has been closed and creditors find out about an unscheduled asset, the bankruptcy case may be reopened. The unscheduled asset can be taken, sold and the proceeds used to pay off creditors from the case. The court can also demand a review of your remaining assets, income, property and debts to find out if there are any other unscheduled assets According to the IRS, in 2011, about 83% of those found guilty of bankruptcy fraud ended up in jail for an average sentence of 32 months. Whistle blowers who report bankruptcy fraud are rewarded for the information.
Bankruptcy cases landing someone in jail this long tend to be the result of bankruptcy fraud involving large sums of money, businesses or both. Classifying personal property as business property and then reclaiming it after the personal bankruptcy is considered as bankruptcy fraud.
However, transferring property through the business to friends, coworkers and partners with the promise to protect the property is also a crime. For example, selling your boat to a business partner with the promise to be allowed to use it on weekends is bankruptcy fraud. Yet failing to properly list a stake in a failing personal business or selling shares at a loss in an attempt to remain personally solvent can lead to charges of bankruptcy fraud.
Someone who is going through both a personal bankruptcy and a business bankruptcy needs to work with a skilled Hawaii bankruptcy attorney to ensure that assets are properly listed in each petition without overlap or omission to avoid allegations of bankruptcy fraud. You must be careful of committing bankruptcy fraud, even if accidental. Fortunately, both bankruptcy fraud and its consequences can be avoided by hiring a Hawaii bankruptcy attorney to handle your case.