Bankruptcy Fraud Penalties

By Patricia Dzikowski

Generally, fraud is dishonesty in some form, which is done with the intent that others rely on it so that you gain an advantage for yourself or cause a disadvantage to someone else. Since bankruptcy is intended to provide relief to the honest debtor and treat creditors as fairly as possible under the circumstances, bankruptcy fraud by any party involved in the process is taken very seriously. There are several penalties that can be applied.

Criminal Penalties

The law provides a separate category specifically for bankruptcy crimes. Under the federal law, bankruptcy crimes involve some type of fraud or dishonesty. You are committing a bankruptcy crime if you hide assets, lie under oath, submit a false claim, bribe someone involved in the bankruptcy process, embezzle money or property from the bankruptcy estate, or otherwise commit fraud in connection with a bankruptcy filing. If found guilty, you can be imprisoned for up to five years and fined up to $250,000. These penalties can apply to anyone involved in the bankruptcy–not just the debtor.

Denial of Discharge

Fraud is a basis for the court to deny your discharge. If it can be proven that you engaged in fraudulent conduct, your discharge could be denied as to all debts; if the fraudulent conduct involved one debt, that particular debt could be declared nondischargeable, or not discharged. Even worse, if your discharge is denied, you may not be able to discharge the same debts in a later bankruptcy proceeding. If you receive your discharge before the fraud is discovered, it may also be possible to bring the matter back before the court for revocation of your discharge when the fraud comes to light.

Get a free, confidential bankruptcy evaluation. Learn More

Loss of Exemptions

Fraud can also put your exempt assets, which are normally protected in bankruptcy, at risk. Some courts have allowed bankruptcy trustees to recover losses caused by a debtor's dishonest or fraudulent acts from assets that you would normally be allowed to claim as exempt (or protect) in the bankruptcy case. More commonly, assets that have been hidden or transferred in an attempt to hinder, delay or defraud creditors will be recovered by the trustee and any exemption you would have been able to claim in the property (so that you could keep it) will be denied.

Dismissal

Dismissal of your bankruptcy case is probably the mildest penalty that can be applied. But even dismissal may have a long term effect. The bankruptcy court has the power to set waiting periods before you can file again. The court can dismiss your case with prejudice for a specific time. If this happens, you can’t file again until the time passes, unless you convince the court to change its ruling and shorten the prejudice period. The court can even ban future filings entirely if it is determined to be necessary to prevent you from abusing the bankruptcy laws in the future.

Get a free, confidential bankruptcy evaluation. Learn More
Types of Bankruptcy Fraud
 

References

Related articles

Can You Reopen a Bankruptcy Chapter 7?

Under Chapter 7 bankruptcy, most of your consumer debts are discharged by a court order within approximately six months from the filing of your petition. This discharge is important because it legally wipes away any claims that creditors have that you owe money on a debt so long as you identified the debt as part of your bankruptcy case. However, if you failed to identify a creditor as part of your case, you may be able to reopen the case under certain circumstances.

The Difference Between Voluntary & Involuntary Bankruptcy

A bankruptcy may be the only way to get out from under your debt, but it can have severe consequences on your credit score. When you think of bankruptcy, you most likely think of voluntary bankruptcy, which is initiated by an individual or business. But a bankruptcy may also be initiated by a creditor. This is known as an involuntary bankruptcy.

Can a Bankruptcy Court Take Your Injury Settlement?

If you are on the verge of filing for bankruptcy because you lost your job due to an injury, you may find yourself in bankruptcy court seeking protection from your creditors and in state court pursuing a personal injury claim. You must work with your attorneys carefully, and disclose any personal injury claims to the bankruptcy trustee or you may not be able to recover any money for your injuries.

Bankruptcy

Related articles

Can You Go to Jail if You Get Denied a Bankruptcy Discharge?

A bankruptcy court's discharge releases you from the debts included in it. Federal and state laws don't allow you to ...

What Can Happen if I Don't Give My Income Tax Refund to the Trustee After Bankruptcy?

Once you file for bankruptcy, there are certain rules you must follow throughout the process. For example, you must ...

How to File an Objection in a Bankruptcy Case

Bankruptcy is a legal process intended to give debtors a fresh financial start. When an individual files bankruptcy, ...

Can a Debtor Request Abandonment in a Chapter 7 Bankruptcy Case?

If you file for Chapter 7 bankruptcy, you can request that the trustee abandon, or release, certain property back to ...

Browse by category
Ready to Begin? GET STARTED