Bankruptcy serves a vital role in the economy. Without bankruptcy, some debtors would never be able to dig their way out of debt. With no ability to discharge debts, they would have to pay their debt by going to prison. At the very least, debtors with no way out could never recover and become contributing members of society. Bankruptcy should be viewed as a tool for those that intend to repay their debts but ultimately can’t. Unfortunately, there are a few that try to cheat the system. This is known as bankruptcy fraud.
The bankruptcy process is complex, and there are many regulations in place to make sure it isn’t taken advantage of. While many who commit bankruptcy fraud do it on purpose, there are some who do it in ignorance. Here are a few things to keep in mind in order to avoid bankruptcy fraud.
Types of bankruptcy fraud
Bankruptcy is intended to be for those that cannot repay their debts on their own. Consequently, there is a limit to how much income a bankruptcy filer can make. There are many different types of income and all of them must be declared in the bankruptcy. Failing to report income, either on purpose or on accident could result in your case being thrown out.
In order to prevent bankruptcy from being misused, there is a limit to how often a person may file for bankruptcy. Falsifying information in order to file bankruptcy before the minimum waiting period is another form of bankruptcy fraud.
Yet another dishonest use of bankruptcy is when individuals rack up large amounts of consumer debt with no intent to repay them. Again, bankruptcy should only be used when a person has made a good faith effort to repay their loans and failed. Any suspicious spending in the months prior to bankruptcy could cause a case to be dismissed.
During bankruptcy, a person’s debts are discharged but only after their non-exempt property has been liquidated to repay as much of their debts as possible. Attempting to hide or failing to mention property or assets in bankruptcy is also considered fraud and could lead to a prison sentence or steep fines.
Seek legal help
Filing for bankruptcy can be difficult if you try to do it alone. There are many potential missteps, and some of them carry severe consequences. It’s always a good idea to consult a bankruptcy attorney who will ensure that you dot your Is and cross your ts.
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