Filing for bankruptcy offers a legal path for financial relief, but it must be done carefully and honestly. People under pressure may overlook important requirements or misstate information, assuming that minor errors will not matter. However, certain mistakes on bankruptcy applications can lead to more than just delays. They could result in criminal fraud charges.
Bankruptcy fraud involves intentionally misleading the court or trustee during the filing process. Even small missteps can raise suspicion, especially when they involve asset reporting, income disclosure or property transfers. Knowing what constitutes fraud and how it typically occurs can help protect individuals from unnecessary legal consequences.
Different types of bankruptcy fraud
There are several ways in which fraudulent activity can take place during bankruptcy. Below are some of the most common forms:
- Hiding assets: A person may try to keep certain accounts, vehicles or valuables out of sight, hoping they will not be discovered. This includes transferring property to friends or family members.
- Providing false information: Filing forms that contain inaccurate or incomplete details about income, expenses or debts can amount to perjury, especially if done on purpose.
- Multiple filings: Submitting applications in different jurisdictions using false identities or repeated filings to delay collections is a type of fraud known as petition mills.
- Undervaluing property: Listing assets for far less than their real worth to appear eligible for exemptions may be seen as an intentional attempt to mislead the court.
- Improper asset transfers: Selling or giving away high-value property just before filing in order to avoid losing it in bankruptcy may raise concerns during trustee review.
These issues are taken seriously and can result in more than just the dismissal of a case. In some instances, they lead to criminal charges, financial penalties or prison time. While not all errors are made with harmful intent, they can still attract scrutiny.
Seeking legal guidance early in the process may help avoid common pitfalls and clarify what must be disclosed.
