Understanding Bankruptcy Fraud

Bankruptcy provides one of the most efficient ways to repay debts and start over again. For that reason, it is intended to be used only by people who are in serious need. Unfortunately some people attempt to exploit the effectiveness of the bankruptcy process by filing for bankruptcy multiple times. This is known as multiple filing fraud, and it can result in serious legal penalties.

Like any type of fraud, people committing bankruptcy fraud can be very creative in finding new ways to exploit existing bankruptcy laws to their advantage. The government takes bankruptcy fraud very seriously, however, so great effort is put into ensuring only people who have a legitimate need for bankruptcy protections are able to use it.

Nonetheless, there are a few primary ways in which people attempt to commit bankruptcy fraud. An obvious way to commit fraud would be to hide certain financial assets from the bankruptcy court, preventing them from being used to repay debts. This can be extraordinarily difficult, and for that reason it is often the downfall of wealthier individuals.

One of the most common ways people attempt to commit bankruptcy fraud is by filing in two separate states. Bankruptcy cases are handled on a state-by-state basis, but there is still communication between states regarding bankruptcy issues. Computers have made this strategy even less effective.

Some people attempt to file using fake names and/or fake Social Security numbers. Some steal the identities of other people, using the victims' names and Social Security Numbers to file for bankruptcy for their own benefit. Identity theft is a serious problem affecting millions of people around the country, and the act of stealing an identity alone can result in time in federal prison.

Bankruptcy fraud is taken very seriously by the Federal government. Being convicted of bankruptcy fraud can result in up to five years in Federal prison and a fine of $250,000. Upon release from federal prison, people guilty of bankruptcy fraud will be branded as convicted felons for the rest of their lives and may find it impossible to hold down a normal job.