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Avoid Bankruptcy Fraud


For people or businesses that have become immersed in debt and who need a way out, the bankruptcy system may be able to help. But the process is complicated, and those who enter the system must be prepared for complete transparency when it comes to their finances. Anyone tempted to misrepresent their financial situation is looking for trouble—as it is punishable by a fine of $250,000 and five years in federal prison.

What is Bankruptcy Fraud? 

Simply put, bankruptcy fraud occurs when individuals intentionally lie about their finances on the forms associated with the bankruptcy application. It’s uncommon for people to attempt fraudulent activity in this situation, but anyone considering it should be aware of the fact that documents are meticulously vetted by bank trustees, attorneys, and the judge.

Examples of Fraud 

Individuals who engage in fraudulent activity in connection to their bankruptcy filing can be easy to spot:

  • Perhaps the most common attempts at bankruptcy fraud involve the misrepresentation or outright concealing of assets. Whether it’s a vacation home in another state or a car that’s parked in your in-law’s back yard, lying about assets constitutes fraud.
  • Undervaluing assets is another common attempt at fraudulent activity. In this situation, the vacation home or hidden vehicle are reported, but are listed at significantly less than current market value dictates.
  • Sometimes people do not divulge income they have from, say, freelance jobs or under-the-table work. The discrepancy often shows up when tax returns don’t match up properly with financial statements.
  • Transferring assets, cash, or property to family and friends prior to filing for bankruptcy is another way to attempt to hide those assets. Be aware that these kinds of activities could be scrutinized going back as far as six years.
  • Selling high value assets for ridiculously low prices to family members could also get one into trouble with bankruptcy court. It will certainly raise red flags if you sell your Rolex for $10 to your brother, for instance.

Corporate Fraud 

Businesses are not immune from fraudulent activity, although it often looks a bit different than personal fraud:

  • Bleedouts may occur—involving the transfer of equipment, customers, and so forth to a new company, as the old company collapses. It’s often detectable when money transfers, inventory shrinkage, or new business formations occur close to a bankruptcy filing.
  • Another example of fraud involves the paying of particular creditors in favor of others. This is illegal, because it often involves paying off friends and family who loaned the company money instead of banks or other creditors.
  • Bonuses paid to high-level executives are also out of line just prior to a bankruptcy filing.

Color in the Lines

 At The Law Office of Julia Kefalinos, our experienced Miami bankruptcy attorneys will guide you through the bankruptcy process, ensuring that you get the help you need without inadvertently or purposely engaging in fraud, thereby avoiding the disastrous consequences of such activity.  To discuss your situation, schedule a confidential consultation in our office today.

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