Bankruptcy fraud is essentially any act by which an individual uses the protection of the bankruptcy system to get out of debts she should pay. Intentionally racking up debts you know you can not pay in addition to giving false information in a bankruptcy filing also constitute bankruptcy fraud. Bankruptcy fraud is a federal offence that is investigated by the Federal Bureau of Investigation. Suspected bankruptcy fraud can now be reported by anyone via an online form provided by the United States Department of Justice.
Concealment of assets is the most common type of bankruptcy fraud and accounts for 70 per cent of all bankruptcy fraud. When a debtor fails to report all of his assets, undervalues assets or hides assets by putting them under the names of friends and family, he is concealing assets.
When an individual files bankruptcy, all action that creditors may be taking against the debtor must come to an immediate stop until the case is decided. Some individuals who are facing foreclosure or eviction will file a bankruptcy petition on order to stop the action being taken against them. The filing will usually contain misinformation so that the case can never be finalised, which would prevent the debtor from being allowed to file for bankruptcy again within a specified time period.
If a debtor has substantial assets, the court will assign a value to those assets and appoint a seller to sell the assets and convert them into cash. Under the fictitious buyer scheme, the seller sells the assets for more than the amount assigned to them by the court. Any money received over and above by the court mandated values of the assets is profit and is either kept by the seller or split between the seller and the debtor, if the two are working together.
In this type of bankruptcy fraud the debtor is unaware that fraud is occurring. A company will advertise that it is a typing service that can prepare all of the paperwork needed to stop an eviction. Individuals seeking help hire the company which then files bankruptcy in the individual;s name without telling that person. The typing company then drags the case out as long as possible while charging the individual exorbitant fees.
This form of bankruptcy fraud is usually committed by businesses. A company will purchase merchandise on credit and pay for it promptly until the company has good credit with several sellers. The company then buys a very large quantity of goods, sells them and files for bankruptcy rather than pay its creditors.