While the notion of securing a fresh start via bankruptcy is undoubtedly an appealing proposition to those in dire financial straits, the process of actually getting to this point can seem more than a little intimidating. Indeed, that’s because those filing for Chapter 7 will see some of their assets liquidated, while those filing for Chapter 13 will see themselves tied to a three- to five-year repayment plan.
While this feeling of intimidation is certainly understandable, it’s important for people to remember that any difficulty experienced in regard to Chapter 7 or Chapter 13 will be short-term, while the relief offered by either process will be long-term. It’s also important, however, for people not to let their fears get the best of them such that they engage in bankruptcy fraud.
What exactly is bankruptcy fraud?
In general, bankruptcy fraud occurs when a person filing for Chapter 7 or Chapter 13 knowingly hides assets from the bankruptcy trustee through any of the following methods:
- Filing incomplete or false paperwork
- Concealing property transfers made immediately prior to filing for bankruptcy (i.e., giving a family member your watch collection a week before filling out the Chapter 7 paperwork)
- Hiding or destroying applicable documents
- Bribing someone to assist with the concealment of assets
How is bankruptcy fraud punished?
Federal law dictates that any individual proven to have knowingly and fraudulently concealed assets, made false oaths/claims or engaged in bribery in relation to a bankruptcy filing is guilty of a felony punishable by a fine of up to $250,000 and/or up to five years in prison.
Why does the federal government call for such a harsh punishment?
The reason for the aforementioned harsh punishment can likely be traced to the recognition that bankruptcy fraud works a disservice to an individual’s creditors, who have already sacrificed full payment.
Specifically, the concealment of assets lessens the size of the bankruptcy estate (i.e., the proceeds derived from the sale of nonexempt assets in Chapter 7 and the money secured via repayment plans in Chapter 13) and, as such, limits the ability of creditors to mitigate their financial losses by laying claim to a larger portion of it.
The aforementioned information was in no way meant to cause unnecessary alarm. Indeed, the overwhelming majority of people who file for bankruptcy are eager to proceed with both transparency and truthfulness.
Rather, the point was to impress upon prospective filers just how important it is to resist the temptation to be even the slightest bit less than forthcoming regarding their assets.
As always, if you have questions concerning Chapter 7 or Chapter 13, consider speaking with a skilled legal professional able to answer your questions and pursue the necessary solutions.