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Types of bankruptcy fraud

On Behalf of | Mar 25, 2022 | Criminal Defense

Bankruptcy helps consumers in Hattiesburg, Mississippi, eliminate unsecured debts through several types of bankruptcy. However, data shows 10% of bankruptcy cases involve fraud, which commonly involves several forms.

Common bankruptcy fraud

Bankruptcy fraud is a white collar crime that occurs when the filer attempt to conceal or deceive. The top form of bankruptcy fraud is concealment, accounting for 70% of all cases, which is omitting nonexempt assets. Since only nonexempt assets are sold in Chapter 7, the filer may attempt to hide the asset before filing.

Another common type of bankruptcy fraud is valuing a nonexempt asset lower or higher than it is worth. However, it depends on how long ago the asset got transferred, which commonly won’t count after six years.

A filer can commit fraud by filing multiple cases in various states under different names or even the same names. While multiple filings aren’t always illegal, they could slow the system, and it is often used to cover concealed assets.

Petition mills try to take advantage of homeowners at risk of eviction or foreclosure, acting as a consulting service. They promise to pay a mortgage for a fee, but proceed to start a bankruptcy in the consumer’s name.

When creditors accuse consumers of fraud

In some cases, the filer has done nothing wrong, but the creditors bring charges of fraud against them. This may occur when the consumer accumulates debt close to the filing date, but it depends on the amount. Debts are presumed fraudulent within 90 days of filing when:

  • The debt totals more than $675 from one creditor.
  • Cash advances are more than $950.
  • The filer buys luxury goods.

The consumer must prove to the court they didn’t have ill intentions when they took the debt. The creditor has 90 days to file an adversary proceeding to challenge the debt after the 341 creditor meeting.

Bankruptcy fraud carries the consequence of losing exemptions or criminal penalties. However, it is possible to make honest mistakes on bankruptcy petitions.