What is “bankruptcy fraud” and how do I avoid it?

The bankruptcy law takes fraud very seriously. Generally speaking, there are potentially serious consequences–including jail time–for lying, dishonesty, misleading statements, withholding information and outright fraud in the bankruptcy process.

What are some examples of fraud in the bankruptcy context?

1. Any attempt to manipulate, cheat or deceive the bankruptcy court. Concealing assets is a classic example. When you file for bankruptcy, you need to disclose all of your assets. And “all” means all. If you’re not sure of something, ask your bankruptcy lawyer. If you hide something and it comes out later that you hid it (and it usually does in our experience), then all the hard work you’ve done on your bankruptcy case could be for naught.

2. Threats to creditors. If you, as a debtor, threaten a creditor in any way–even a threat to stop doing business with a creditor if they file a claim in bankruptcy against you–that is a form of extortion and is considered fraud. The goal of the bankruptcy process is to get a clear picture of all of the assets possessed by the debtor and all of the claims held by creditors. Only then can the process do its job of distributing assets fairly among creditors. Any extralegal attempt to interfere with this process will not be appreciated by the bankruptcy court and could hurt your case.

3. A big credit card charge right before you file for bankruptcy. This is a big no-no. Yet a lot of people think they can get away with it for some reason. If the bankruptcy court sees a large purchase (or purchases) on your credit card right before your bankruptcy filing date, you are going to have a lot of explaining to do. And if you can’t explain it, then it’s going to hurt your chances of getting a discharge in bankruptcy.

4. Withholding important documents without a good reason. Your bank or mortgage statements may not be assets in and of themselves. But if you are required to submit them, then failure to turn them over may constitute bankruptcy fraud. If you can’t access them for some reason, then of course you can explain that to the court.