Bankruptcy fraud is a Federal Crime in U.S. [18 USCA § 152]. It can be by doing any of several proscribed acts performed knowingly and fraudulently in a bankruptcy case, such as concealing assets or destroying, withholding, or falsifying documents in an effort to defeat bankruptcy-code provisions.
Bankruptcy fraud may occur in various ways but one of the most common methods of indulging in fraud is to make false statements with regards to one’s assets while filing a claim for bankruptcy protection. Concealment of assets from the court can be done by illegal transfer of money to family members or friends, shift the property or assets to offshore accounts and failing to report the various sources of income.
Another method is by multiple filing which consists of filing for bankruptcy in multiple states using either the same name and information or aliases and fake information, or some combination thereof. Multiple filings slow the court systems’ ability to process a bankruptcy filing and liquidate the assets.
Yet another method of bankruptcy fraud is through petition mill. This type of fraud is perpetrated by a third party. The third party poses as a consulting firm which will avoid eviction from their rental accommodations. The firm takes all the debtor's information and charges exorbitant fees, claiming they are fighting the eviction. In reality, they have filed for bankruptcy, ruined the debtor's credit, and drained the cash resources.
Proof of fraud in bankruptcy cases requires showing that the defendant knowingly and fraudulently made a misrepresentation of material fact. Bankruptcy fraud carries a sentence of up to five years in prison, a fine of up to $250,000, or both.
Bankruptcy fraud is also termed as criminal bankruptcy or bankruptcy crime.