Legal Definitions - bankruptcy fraud

Bankruptcy Fraud

Bankruptcy fraud refers to any intentional deception or dishonest act committed by an individual or business during a bankruptcy proceeding. The purpose of such fraud is typically to mislead the court, creditors, or other parties involved, often to gain an unfair financial advantage, avoid legal obligations, or prevent assets from being distributed to those owed money. It involves knowingly providing false information, concealing assets, or engaging in other deceptive practices related to the bankruptcy process.

Examples:

• A small business owner, facing imminent bankruptcy, secretly transfers ownership of several expensive company vehicles to a relative for a nominal fee, then files for bankruptcy claiming the business has no valuable assets.

  This illustrates bankruptcy fraud because the business owner intentionally concealed assets (the vehicles) by transferring them away before filing for bankruptcy. Their goal was to prevent these assets from being sold to pay off the company's debts, thereby deceiving the court and creditors about the true value of the business's holdings.

• An individual filing for personal bankruptcy intentionally omits a significant portion of their monthly income from a freelance job on their official bankruptcy forms, making it appear as though they have less disposable income than they actually do.

  This is an example of bankruptcy fraud because the individual knowingly provided false and incomplete information on mandatory legal documents. By misrepresenting their income, they are attempting to manipulate the bankruptcy process, potentially qualifying for a more favorable debt discharge than they would otherwise be entitled to, at the expense of their creditors.

• A debtor, after filing for bankruptcy, attempts to bribe the court-appointed trustee by offering a sum of money in exchange for the trustee overlooking certain valuable collectibles that were not disclosed in the bankruptcy filing.

  This scenario demonstrates bankruptcy fraud through bribery and obstruction. The debtor is attempting to corrupt the legal process by influencing a court official to ignore concealed assets. This act aims to prevent the proper administration of the bankruptcy estate and to unlawfully retain property that should be used to repay creditors.