3 Common Types of Bankruptcy Fraud Can Land You in Prison


A person is declared bankrupt when a court determines the person to be legally insolvent, or broke, in response to a petition filed by the debtor or his creditors. Then, following the bankruptcy law, the person's property is liquidated and divided among his creditors to pay his bills.

A person commits bankruptcy fraud -- a federal offense -- when he falsely claims he is bankrupt. The most common types of bankruptcy fraud are the following:

- Hiding Assets

Almost 70% of bankruptcy fraud cases filed by individuals involve someone trying to hide personal assets or business assets. This type of fraud in bankruptcy occurs when a person intentionally does not list all of his personal or business assets in the bankruptcy petition he files with the court. By omitting some assets, the debtor hopes creditors will liquidate and sell only the property he lists, and never discover that he has other assets he didn't list. Likewise, business owners often hide assets when filing for bankruptcy by transferring money or property to relatives so these assets won't be seized and then liquidated by sale or auction to pay off creditors.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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