Another important concept to keep in mind during bankruptcy in Dallas is the difference between an innocent debtor and a fraudulent debtor. An innocent debtor is a person who has not accrued debt because of illegal activity or fraud, but is unable to pay certain debts. This means that any debtor who made unwise financial decisions and spent money outside of his/her means is considered an innocent debtor. On the other hand, a debtor who has lied about his/her income to qualify for a loan may not be considered innocent, according to a bankruptcy court. If a creditor can provide evidence that a debtor engaged in an illegal activity, such as fraud, when incurring debt, the creditor may be able to challenge the bankruptcy discharge. Additionally, this can apply to a debtor who intentionally concealed assets to evade repaying creditors or a debtor who transferred assets in order to deceive the court.
A number can qualify as bankruptcy fraud under federal law. These include:
Any debtor who knowingly conceals assets from the bankruptcy trustee is committing fraud against the court. This includes:
- transferring assets to someone else prior to a bankruptcy,
- failing to disclose assets that you don’t want to leave vulnerable in a Chapter 7, or
- fabricating documents to conceal the value of assets.
If a debtor conceals assets, they may have their bankruptcy dismissed outright, and the debtor may be subject to criminal charges. Bankruptcy fraud is penalized by up to 5 years in federal prison, a $500,000 fine, or both.
When your petition for bankruptcy is processed, you will have to swear under oath that all of the information you provided was factual and complete. Those who lie under oath will seriously damage their credibility with the court. They could also have their bankruptcy case dismissed and be subject to criminal charges. Learn more about how Making a False Oath Can Lead to Denial of Bankruptcy Charge.
Fraudulent conveyances refer to property transfers with the intent of defrauding a creditor. The bankruptcy trustee will take a look at any property transfers that occurred within one year of your filing for bankruptcy. Your creditors will be on the lookout for any such transfers as well. If your creditors or the trustee suspect that a transfer occurred for the sole purpose of limiting the exposure of certain assets during your filing, an adversary proceeding will take place. The creditor must be able to show that you transferred the asset with the intent of defrauding the court. In other words, they must prove intent.
Constructive fraud
Constructive fraud is an example of a fraudulent conveyance. This is when a debtor transfers a piece of property for an amount substantially lower than its value.
Multiple filings
This is a scheme in which a debtor files under different names in various states, concealing assets to protect them from liquidation.
There are other, more familiar forms of bankruptcy fraud. For instance, let’s say you open up a line of credit knowing that your finances are insolvent and hope to discharge that debt in bankruptcy. The creditor can prevent you from doing so during the adversary proceeding. Again, they have to prove that this was your intent all along and not an honest mistake.
