Fraud is an intentional deception made for personal gain or to damage another individual. Most people are honest and would never commit fraud. But the Bankruptcy Code and related case law is complicated and sometimes debtors commit fraud in their bankruptcy case without even knowing.
There are three common ways that a debtor may unknowingly commit bankruptcy fraud. The first way has to do with incurring debt. When you borrow money from a creditor, the creditor is relying on your promise to repay the debt. If you borrow money knowing that you have no intention of repaying the debt, you are committing fraud. But even if you don’t know that you will be filing bankruptcy at the time you borrow the money, if you file bankruptcy soon after borrowing the money the burden may be on you to prove there was no intent to defraud if a dispute arises as to discharging the debt.
Second, if your bankruptcy schedules and statements contain inaccurate information you may be committing bankruptcy fraud. This doesn’t necessarily mean that you intended to lie in your documents. The error could be the result of sloppy bookkeeping or lack of attention. However, you are swearing to the accuracy of the documents when you sign them, so it is your duty to ensure that the statements contained in them are accurate.
Third, if you sell property for less than its fair market value before filing bankruptcy the court may interpret the sale as fraud. The court will consider whether you sold the property for a reasonable price and whether you disclosed the sale in your bankruptcy statements. Selling property for less than it is worth before filing bankruptcy, especially when the sale is to a family member or friend, may be interpreted as bankruptcy fraud, because it prevents the trustee from providing payments to the your creditors.
Bankruptcy fraud is usually easy to avoid and these types of problems don’t arise very often. Answer your bankruptcy attorney’s questions honestly. Provide explanations regarding information related to your bankruptcy attorney’s questions, even if you think the information may not be relevant. Read your bankruptcy documents carefully before you sign them. If you follow these simple steps you should be able to avoid issues involving bankruptcy fraud.