‘How to identify bankruptcy-related white-collar crimes and avoid them’
Introduction
When filing for bankruptcy, you are supposed to enlist all the property that you own at present and also any assets that you have transferred to others within a specific period. If you intentionally do not mention the information required when filing your bankruptcy paper, you could be found guilty of fraud. This type of fraud is termed as bankruptcy fraud.
Types of bankruptcy fraud
Bankruptcy fraud is a white-collar crime that generally takes four forms as mentioned:
- When the debtors conceal assets to avoid having to surrender them.
- When individuals knowingly file either false or incomplete forms.
- When individuals file multiple times using faulty information or real information in several forms.
- When individuals bribe a court-appointed trustee.
Usually, these forms of frauds are accompanied by another crime, such as identity theft, mortgage fraud, money washing, and public corruption.
Recognizing bankruptcy fraud
Most of the times the bankruptcy fraud accusations are straightforward like if a debtor or debtor’s agent cut up documents to conceal the transfer of hidden property that belonged to the debtor’s estate is not complicated. Other situations are problematic, like if debtor hiding or extremely undervaluing an estate asset. Notwithstanding the complexity of the scheme, lawyer must be aware that sceptical activity is best learned beforehand and thus handled by the way of written documents, depositions and expert consultation.
Some common fraud schemes involving bankruptcies are:
- Bust-outs: A bust-out is conducted by a company that is structured to fail from the beginning. The operator obtains the stock from creditors, disposes off the goods (usually for cash) and omits paying the suppliers. A bust-out can also be conducted by purchasing an existing company and using the good credit of the company to obtain goods, without the intention to pay and then disposing off the goods instantly for cash. Examples-
- Distributors of consumer products
- Retail bustouts
- Tax bustouts
- Credit card bustouts
- Travel agency bustouts
- Bleed-outs: A bleedout is more or less similar to a bustout. It generally involves an existing company and an expenditure of assets by insiders over a relatively longer period of time. In this situation there are hidden assets or fraudulent statements. Long-standing owners or corporate raiders can be executioners of the crime. Examples-
- Corporate Raider Bleedouts
- White knight bleedouts
- Parallel entities
- Investor fraud: Also known as the Ponzi scheme (pyramid) accounts seeking investments by assuring interest rates that is way higher than the market rate. Initial investors recover their investments with the promised return rate and recommending others to invest. As the pyramid begins to collapse, investors are unable to recover their original investments and the interest also is no longer paid. Examples-
- real estate schemes
- church and ethnic schemes
How to avoid bankruptcy fraud
- Individuals should not be concerned about committing bankruptcy fraud if certain precautionary measures are taken at the time of filing bankruptcy
- Individuals should be 100% honest about all property, assets, income and information, all should be properly reported to the bankruptcy trustee or attorney
- Individuals should not try to transfer any assets, property or income to acquaintances immediately before filing for bankruptcy
- Individuals should not use any credit cards or take out any loans, it should be done only if it is very necessary within 90 days before filing for bankruptcy otherwise the bankruptcy court may establish that you had no intention to pay back the debt
- If an individual had filed for bankruptcy earlier, he should be absolutely honest about it
- If an individual is required to sell nonexempt assets, he should sell them for a fair market price
- Individuals should not sell non-exempt assets only to purchase exempt assets without a reasonable use for the property
Civil penalties for bankruptcy fraud
- Forfeiture of discharge rights- collectors can sue you and forclose the property as well
- Loss of exemptions- everything taken away
- Prison
- Probation
- Fines