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Understanding Bankruptcy Fraud And Potential Defenses

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Understanding Bankruptcy Fraud And Potential Defenses


Nobody wants to file for bankruptcy, but sometimes bankruptcy is the best option for a person or business going through financial trouble. When facing debts that simply can’t be paid off, bankruptcy gives people the opportunity to liquidate or reorganize their debts. Bankruptcy can provide a much-needed fresh start and chance to move forward personally or professionally.

However, bankruptcy filings contain a multitude of requirements and rules that must be followed. Failure to follow certain procedures, report certain assets, and be clear about sources of income can lead to charges of bankruptcy fraud. Since bankruptcy is handled in the Federal court system, missteps during the bankruptcy process can lead to Federal criminal charges and even prison time.

It is important to know how one can avoid bankruptcy fraud allegations, and also what to do when facing an investigation or charge related to bankruptcy fraud.

What is Bankruptcy Fraud?

Bankruptcy fraud is a type of “white collar” crime involving the intentional deception of any U.S. Bankruptcy Court. This includes acts of deception toward judges, trustees, attorneys, and creditors involved in the bankruptcy process.

Acts that could constitute fraud under these circumstances include:

  • Concealment of assets. This is the most common form of bankruptcy fraud, as debtors may conceal assets and income or misrepresent financial data to make themselves appear to be worse off than they really are. About 70% of bankruptcy fraud involves concealment of assets. Since a bankruptcy may not be granted if the debtor has sufficient assets and income to pay their debts, debtors (and in some cases their representatives or attorneys) may be tempted to manipulate financial figures to gain an edge in the bankruptcy proceeding.
  • “Bust-out” schemes. Bust-out schemes involve intentional acts to take out loans or obtain credit with no intention of ever paying debts. These debtors will run up debts – even acquiring vehicles and homes – and file for a Chapter 7 bankruptcy once they’ve hit their spending limits. Attempts to accumulate and then liquidate this manner are a prime example of bankruptcy fraud. These schemes can involve sophisticated criminal networks or everyday individuals engaging in risky behavior. Either way, the punishments can be severe.
  • Multiple filing schemes. These schemes involve filing bankruptcy petitions in multiple jurisdictions – even multiple states – using the same information, or false information. These acts can interfere with a bankruptcy court’s docket and slow down the process – providing cover for a debtor to conceal or move assets.

To prove bankruptcy fraud, prosecutors must show some deliberate effort to deceive or defraud the bankruptcy court at any stage in the process. A bookkeeping error or other unintentional mistake can lead to an investigation or even a criminal charge, but if the defendant can show that the mistake was not intentionally deceitful, they might have a strong and successful defense.

If You Face an Investigation or Charge for Bankruptcy Fraud , Contact Our Pearland, Texas Criminal Defense Attorney Today

Bankruptcy is a serious matter that is handled only in Federal courts such as the Southern District of Texas. Violations of rules and procedures involved in the bankruptcy process, along with intentional acts of fraud, will have severe consequences including potential prison time. If you are being investigated or charged with bankruptcy fraud, you need a skilled legal team at your side.

At Keith B. French Law, our firm will analyze any evidence the prosecution is attempting to use against you and build the strongest defense possible. To learn more about your legal rights in bankruptcy fraud claims, contact a Pearland criminal defense lawyer at our office today.


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