Bankruptcy fraud is any kind of fraud involving filing for bankruptcy in an attempt to gain some kind of profit from the overall scheme. Bankruptcy is normally an option designed to just allow for debtors who are unable to pay off their debts to achieve a fresh start, so as to be able to then reach a place when they might feasibly be out of debt, while still giving some kind of restitution to creditors.
Bankruptcy, as a concept in America and the western world, has its origins in England, in days when creditors might be able to seize all of a debtor's possessions to pay off a debt, and then throw the debtor in jail. Those days are, fortunately, gone, as over time, debtors were given more and more rights.
The relationship between the debtor and the creditor at the core of bankruptcy changed as well, until eventually, bankruptcy was no longer simply a way for creditors to have power over debtors, but was instead an option that would ensure both creditors and debtors made off a bit better than they otherwise might have. The problem, however, is that as bankruptcy grew more and more complex, and as its strictures upon the debtor became more and more lenient, it also became more prone to fraud, as individuals sought to take advantage of the bankruptcy system. If you need legal advice and assistance, contact bankruptcy lawyers.
Nowadays, as the bankruptcy system is now perfectly fair to debtors, there are numerous ways to attempt bankruptcy fraud. To find out more about how bankruptcy fraud came to be what it is today, follow the link.
There are a number of different schemes and methods available to anyone who is looking to perpetrate bankruptcy fraud. This is especially true when one takes into account all of the different chapters under which one can file bankruptcy, and how each of them would require slightly different practices for fraud to function.
For instance, Chapter 7 bankruptcy involves the absolute liquidation of all assets in order to pay debts, while Chapter 13 bankruptcy offers a reorganization, instead of a liquidation, so that the debtor might be allowed to pay creditors over some longer period, with a clearly defined plan. Each chapter of bankruptcy, then, could use a slightly different set of tenets for committing fraud.
But some bankruptcy fraud schemes are much more known than others, so much so that they have become identified by certain terms and characteristics, which any bankruptcy fraud investigators would know to look for, no matter under what chapter they fall.
There are schemes like the bust-out, which involves starting a new company for the specific intent of quickly driving it to bankruptcy while making large amounts of illegitimate profits from it, or the bleed-out, which involves slowly draining a more long-lived company, but eventually getting it to the same, bankrupt place. These schemes are quite serious, especially due to how much they are focused on a complete subversion of basic market practices.
Bankruptcy fraud is difficult to detect, and the penalties for it are therefore difficult to implement against perpetrators. Most instances of bankruptcy fraud likely go entirely undetected, and those that are detected and brought to court most likely end in a failure to convict. But for those instances where the perpetrator can be found, it is important that the penalties be swift and punishing, in order to discourage further action from anyone who would perpetrate bankruptcy fraud.
The penalties can range in jail time and in fine amounts, but generally are rather steep, as well they should be for preventing this kind of crime. The unfortunate problem, however, is that sometimes, the people who are actually caught by bankruptcy fraud investigations are completely innocent.
Often, they will simply have made some kind of a mistake in the process of filing for bankruptcy, which is no easy process. The mistake may then seem serious enough to a court that it actually looks like fraud, at which point the court might attempt to bring these individuals to justice by subjecting them to a trial and possibly fraud penalties.
Reporting bankruptcy fraud is critical to those organizations that attempt to rein in such fraud. Bankruptcy fraud is very difficult to detect, and even when it is detected, it's very difficult to prosecute. Informants providing information is one of the most important sources for combating any kind of bankruptcy fraud, then, as such information will be hugely valuable in both ferreting out the fraud, and in successfully prosecuting it.
If you have any information to give regarding an instance of bankruptcy fraud, then there are a number of different sources to whom you should report the information.
The Internal Revenue Service officially leads all such bankruptcy fraud investigations, and reporting information to them would go a long way towards bringing bankruptcy fraud perpetrators to justice, for instance. You'll also likely want to take a number of other steps, in order to protect yourself from any repercussions for acting as an informant.
Hiring a bankruptcy attorney to help protect you would be ideal, and would prevent any of your rightful actions from causing any trouble. Furthermore, some states have a rewards system in place for any such informants, and you would do well to determine if you qualify.
Detecting bankruptcy fraud is a daunting process, because it takes a wide variety of different forms. There is bankruptcy fraud for individuals and bankruptcy fraud for companies, bankruptcy fraud under Chapter 11 bankruptcy code and bankruptcy fraud under chapter 7 bankruptcy code, bankruptcy fraud perpetrated by creditors and bankruptcy fraud perpetrated by debtors, and so on and so forth.
As a result of the sheer variety of bankruptcy fraud available for fraudsters to take advantage of, it is very difficult to come up with a surefire statistical analysis tool that will be able to examine all bankruptcy claims and conclusively determine which ones are fraudulent. Instead, most attempts at detecting bankruptcy fraud come from case descriptions made by agents of the court, or they come from tips from informants.
The former is problematic because even the best case description might not have enough detail to successfully portray any fraud that might be going on, and even the best examiner of these case descriptions might either miss elements, or might misinterpret elements. The latter is problematic because informants, while highly useful, are not terrifically common, and cannot be made to appear with any degree of success; either someone is willing to divulge information, or not.
If you are going to go through the process of filing bankruptcy, then you would do very well to obtain the services of a bankruptcy attorney. A bankruptcy attorney would be able to walk you through the very complex process of filing for bankruptcy, simplistically, and will help you to determine what chapter you should file under, and any other significant details. A bankruptcy attorney might also help you to avoid taking any missteps that might lead you into becoming accused of bankruptcy fraud.
If you do not secure the services of a bankruptcy attorney and find yourself having made those errors, and being accused of bankruptcy fraud, then hiring a bankruptcy fraud attorney is near-vital to your case. This attorney will be able to prove that you merely committed mistakes, with no malicious or damaging intent, and will be able to help you remedy the situation.
Unfortunately, however, because of the sheer skill and knowledge-base provided by bankruptcy fraud attorneys, it is entirely possible that in a case of bankruptcy fraud, one of the more important culprits would be a bankruptcy fraud attorney. Having a bankruptcy fraud attorney help a bankruptcy fraud scheme is often second nature to frauds like this, as the expertise of the attorney will help the fraud to both succeed in general, and to avoid any accusations of illegality, if the fraudsters are actually caught.
Bankruptcy Fraud Types
There are three main types of bankruptcy fraud, any of which is likely to be encountered somewhere within any given bankruptcy fraud. The most common type of bankruptcy fraud is asset concealment, which a fraudster commits when he or she does not report every available asset to the bankruptcy proceedings, and instead attempts to hide some assets, somehow.
This is very common because it's one of the most obvious types of bankruptcy fraud. When all assets are liquidated to pay off debts, and then all debts are removed, the asset concealer would still have access to whatever he didn't report, and would then be able to take those assets along with him into his "fresh start." Most bankruptcy fraud schemes involve asset concealment to some extent.
Another prominent type of bankruptcy fraud is the petition mill, which involves a third party fraudulently filing for bankruptcy on the part of "clients," who are expecting help in dealing with debt, foreclosure, or eviction, most of the time. Essentially, these petition mills are attempts to use a greater knowledge and understanding of the processes of bankruptcy to make money off of those with less understanding. Petition mills are much more insidious than most forms of bankruptcy, because of how much they prey on victims, instead of attempting to defraud the system of bankruptcy itself.
The final prominent type of bankruptcy fraud is making multiple filings for bankruptcy. This last type almost never appears on its own, because it does not generate profit for the fraudsters all on its own. It is in fact a delaying tactic, designed to slow up the bankruptcy process, so that fraudsters have more time to take other action, like concealing assets.
