Bankruptcy Fraud – Concealing Assets in Bankruptcy

Chapter 7 Bankruptcy allows debtors to discharge most of their unsecured debt. Chapter 13 Bankruptcy allows debtors to create a 3 to 5 year debt repayment plan to reschedule many of their debts and repay their creditors.

The process and procedure for each type of bankruptcy varies, but bankruptcy fraud is the same. Bankruptcy fraud is considered a Federal crime, and there are severe penalties if caught.

In a recent United States Supreme Court Ruling (Marrama v. Citizens Bank of Massachusetts, et al.), an individual who was attempting to convert his Chapter 7 Bankruptcy case to a Chapter 13 Bankruptcy was denied his motion because the court ruled that the filer had concealed information about his property. In an attempt to defraud the bankruptcy court, the defendant had transferred his property to a trust, hoping to conceal it from his creditors.

The Supreme Court ruled that Marrama had acted in bad faith by hiding relevant information about his property, the value of the property, and the transfer of the property. If Marrama had been honest he may have had the option to convert to a Chapter 13 Bankruptcy and retain certain assets.

The Supreme Court argued further that this filer was not a “honest but unfortunate debtor” and was not one of the debtors that the bankruptcy laws had been created to protect. The court believed his actions were in bad faith and he was not in financial distress.

What will happen to Marrama? His assets may be liquidated by the Chapter 7 Bankruptcy Trustee who is handling his Chapter 7 Bankruptcy case, and the trustee will use the proceeds from the liquidation to repay his creditors.

So what exactly is bankruptcy fraud and how can you be sure you do not commit it? Bankruptcy fraud includes any actions to conceal your assets or filing multiple bankruptcy filings.

Concealing assets is the most common type of bankruptcy fraud. It occurs in the declarative phase of bankruptcy. Concealment is not only failing to list your assets when you file for bankruptcy but can include an illegal transfer of ownership of your property or assets to your friends or family (while planning to purchase or get them back in the future) or moving your funds or assets to an off-shore account to hide them from the bankruptcy court.

Bankruptcy fraud can also be committed when a debtor files for bankruptcy in multiple states or under a false name. Filing in multiple states may allow the filer to list some of their assets in each case and avoid liquidation of certain assets.

So how serious is bankruptcy fraud? If you are caught and convicted of bankruptcy fraud you may be sentenced to five years in prison and pay up to $250,000 in fines and penalties.

Hiring a Bankruptcy Lawyer

If you are facing a severe financial crisis such as a home foreclosure, wage garnishments, property repossession or bank account levies, have you considered filing bankruptcy?

Bankruptcies can stop all the actions listed above as well as creditor harassment. Chapter 7 Bankruptcy may allow you to discharge most of your unsecured debt, and Chapter 13 Bankruptcy may allow you to create a 3 to 5 year repayment plan to repay your creditors.

Is bankruptcy right for everyone? Bankruptcy is a serious financial decision that should not be made until you talk to a bankruptcy lawyer. Filing bankruptcy can make it more difficult to get a loan or credit or to buy a house. Filing bankruptcy will also negatively affect your credit score.

The following two tabs change content below.


Beth L. is a content writer for Better Bankruptcy. Good content and information is one of many methods we utilize to bring you the answers you need.