Protecting Yourself From Fraud Charges In Bankruptcy

Fraud Charges In Bankruptcy

Charges of fraud are becoming a popular creditor tactic now that the number of delinquencies and defaults are on the rise.  If a creditor can convince the bankruptcy court that a debtor engaged in fraud, the debtor’s bankruptcy case can be dismissed.  But debtor’s facing fraud charges shouldn’t panic, dismissing a debtor’s case is not something a trustee will do lightly.

Below are a few things debtors should know about fraud charges in bankruptcy:

#1 – If a creditor charges a debtor with fraud, they have the burden of proving their case.  For example, if a creditor says that a debtor lied to get credit access, they need to not only prove that the debtor lied, they also need to prove that they depended on that lie when making the decision to grant access to credit.  This can be very difficult to prove.  Even in cases where a debtor has been less than truthful about their income when applying for a credit card, the bankruptcy court has sometimes ruled that it was not enough to make the debt nondischargeable because the creditor did not depend on the income statement when granting credit.

#2 – The creditor is not allowed to bring frivolous claims against the debtor. Bringing unsubstantiated claims against a bankruptcy debtor as a form of harassment or as a delay tactic can cause legal troubles for the creditor. The debtor is also allowed to bring counterclaims against the creditor during the course of their bankruptcy case. For example, a debtor might charge a creditor with engaging in unfair business practices or of deceiving them about their credit card offer.

#3 – Even if it is found that a debtor fraudulently accrued a certain debt, it may not mean a dismissal of their entire bankruptcy case.  If it is an isolated case of fraud, that particular debt may be ruled not dischargeable in bankruptcy. However, if there is evidence of overall fraud in the bankruptcy case, the debtor could face dismissal of their entire case.