How to Avoid Accusations of Bankruptcy Fraud

Bankruptcy fraud is a serious criminal charge. It will prevent you from receiving your bankruptcy discharge, and you could end up paying massive fines, or going to jail.

Often, people take certain actions during bankruptcy that seem quite innocent to them, but which are presumed to be fraudulent actions when the courts find out about them. Educating yourself about these actions, and then avoiding them, is the best way to protect yourself.

Avoid these actions for at least three to six months prior to and during your bankruptcy.

#1) Failing to list every creditor.

When you declare bankruptcy,  you are asked to provide the courts with a great deal of information.

One of those pieces of information is a list of all of your creditors and how much you owe to them. When you don’t list one of them, it gives the court the impression you’re favoring that creditor, intending to pay them while stiffing everyone else. This is especially true if the creditor is a family member or a friend.

You can in fact pay anyone you want after the bankruptcy is complete, so there’s no reason to do this. 

It is possible to make an honest mistake; people who are in bankruptcy sometimes stop looking at or answering their mail and sometimes don’t know about debts they really should have listed. This still isn’t ideal as the court is not necessarily going to take ignorance as an excuse. Do your best to track down all the files and paperwork that can tell you who your creditors are. Pull a credit report to see what you might owe. Try to get your ducks in a row before ever going to an attorney.

#2) Making huge purchases prior to bankruptcy.

The months leading up to a bankruptcy are the wrong time to buy a house, car, or boat. It’s also the wrong time to take out large cash advances or to buy luxury items on credit. 

In fact, if you take out more than $1000 in cash advances or spend more than $725 on luxury items within a certain period of time prior to your bankruptcy, the court will presume that you intended to defraud those creditors. For cash advances the time limit is 70 days, for luxury items the time limit is 90 days. 

At best they’ll refuse to let you discharge those debts. At worst, they’ll charge you with bankruptcy fraud.

#3) Opening new accounts.

You should stop opening new lines of credit as soon as you begin to suspect that you’re going to have to file bankruptcy to dig your way out of financial trouble. Again, this gives the appearance that you are using credit to buy things with no real intention of paying off your creditors.

The type and amount of debt don’t matter. 

#4) Transferring property.

Owe money to family members or friends? Do not pay them. Likewise, do not “sell” any items to your brothers or cousins with any understanding they’ll give those items back. In general, it’s not a good idea to transfer any property at all, even if the transaction is completely legitimate.

This is the oldest trick in the book for hiding assets to the court. It’s also completely unnecessary. You can protect most of your property just by having your attorney structure your bankruptcy correctly.

#5) Failing to work closely with your attorney.

Be absolutely honest with your bankruptcy attorney about your entire financial situation. This will allow your lawyer to catch issues that could cause major problems. Your lawyer can then provide solutions and a strategy which will help you work successfully around any innocent mistakes you may have had.

Are you thinking of filing bankruptcy? Get help early! Contact the Ledbetter Law Firm for a free consultation today.

See also:

Why a DIY Bankruptcy is a Bad Idea

Should You Pay Any Debts During Your St. Louis Bankruptcy?

What is Exempt Property in a St. Louis Bankruptcy?