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How Bankruptcy Fraud Works

When dealing with bankruptcy, honesty is always the best policy. Bankruptcy fraud is a broad term, as it is committed through a variety of ways. In most cases, bankruptcy fraud is based on the lies and deceit of the filer, but sometimes the liability falls on other stakeholders. Intent plays a huge role in the matters of bankruptcy. If you failed to provide some financial information my mistake or error, it shall be considered as accidental bankruptcy fraud. If the evidence does not support your claim of being legally insolvent, there is no escaping the harsh consequences.

Bankruptcy fraud is a Federal crime, which is punishable by five years in federal prison and an inevasible fine of up to $250,000. Filing bankruptcy was once seen as a defamed and shameful act that exposed one’s financial vulnerabilities. Following periods of recession and the current pandemic, there has been a massive upsurge in filings. Sadly, a lot of people claiming to be bankrupt are only scheming for personal gains. Somerville NJ Bankruptcy Attorney reveals different ways bankruptcy fraud is being exercised in our society:

Hiding Property

Providing insufficient data, telling white lies, leaving out segments in bankruptcy forms, or falsifying financial information are all identified as hiding your property. This is by far the most common form of bankruptcy fraud. Filers attempt to cover up valuable assets in order to save them from liquidation.

Devaluing Assets

Lying about the true value of possessed property is another way to qualify for the bankruptcy quota and sidestep court orders of auction or distribution. Assets are devalued by creating forged documents or via verbal account. The least you can do is give a fair estimate of the price of every item under your name.

Disposal or Distribution of Assets

Some people sell off their property and transfer money overseas before filing bankruptcy. Others gift their valuable possessions to family members and friends, or transfer ownership in order to exclude these items from the bankruptcy case.

Multiple Filings

Filing in multiple states is another widespread bankruptcy scam. Individuals provide a combination of genuine and fabricated information in different jurisdictions. This allows them to get rid of greater debt and buys them extra time to retain assets.

Petition Mills

Petition mill is a kind of bankruptcy fraud that is instigated by a third party acting as a financial advisor. By promising debtors a solution to eviction, they gather all their financial info and charge a handsome fee. In reality, they secretly file bankruptcy under the filers name, drain all their assets, and ruin credit scores.

Maxing out Credit/taking on major Debt before Filing

Some people believe that it is justified to max out credit cards and take loans (without the intention of paying back) right before filing bankruptcy. Credit card companies and legal authorities are not fools; they will investigate your recent transactions and recognize it as credit card fraud.


A number of filers bribe their bankruptcy trustee to obtain favors or approval of their claim. The trustee may utilize his/her power to help their case.

Creditor Fraud

Several creditors like to take advantage of their debtor’s circumstances by filing false claims for payments that were already made.


Some lawyers, trustees, and other court personnel try to steal money from the filer’s bankruptcy estate.

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