How Not To Commit Accidental Bankruptcy Fraud

10 September 2020
 Categories: , Blog


The thought of fraud is probably very far from most bankruptcy filers' minds but it can happen nevertheless. Read below to find out about some of the most overlooked forms of fraud some filers may be accidentally perpetrating right before they file for bankruptcy.

Why Your Spending and Financial Transactions Matter

Once you declare Chapter 7 bankruptcy, everything you owe and everything you own comes under the control of the bankruptcy courts. Your bankruptcy is administered by the federal trustee assigned to your case when you file. They are in charge of most major decisions about your financial affairs including seeing to it that any assets that can be used to pay some important debts are available. What many filers don't realize is that their actions before they file can come under scrutiny. Depending on the situation, the trustee can look over past transactions and render them void if fraud is suspected. In this case, the fraud may be unintentional but may still delay the filer's discharge. Take a look at the below situations that might be interpreted as fraudulent activity by either the bankruptcy trustee or a creditor:

A few months before filing for bankruptcy, a filer sold a boat to a relative. When the filer lists assets on the bankruptcy paperwork, they omit the boat since it is no longer in their possession. Regardless of what the motivations were and even if the filer had no idea that they would be filing for bankruptcy, the bankruptcy trustee can take back the boat and it can be sold. Any major asset that is given away, sold, traded, or transferred using any means can be taken back. The look-back period is two years — so be sure to disclose all transactions concerning your assets. In many cases, the omission is innocent with no repercussions. If the asset is given away or sold for a lot less than market value, however, you might have your bankruptcy case dismissed with prejudice.

Some filers can see that a bankruptcy filing is in their future so they take advantage of the situation to charge luxury items on their credit cards. Once bankruptcy is filed, creditors may review recent transactions and flag some for frivolous purchases. If the filer had to use the card for a car repair or other important needs, the transaction may be included with the card balance discharge. Cash advances and credit card use prior to filing must abide by the limits.

Speak to a bankruptcy lawyer and disclose all financial transactions prior to filing for debt relief.

To learn more about Chapter 7 bankruptcy, reach out to a local bankruptcy attorney.