Avoiding Bankruptcy Fraud

Do not run up your debts in excess just prior to filing for bankruptcy. This might seem hard to do; after all you are filing for bankruptcy because you don’t have enough money to make your ends meet. Common sense would tell you that the longer you are in debt, the more debt you will accumulate due to compound interest.

Here is the deal with the bankruptcy courts: if you commit fraud on the court several things can happen. For intentionally committing fraud on the bankruptcy court, a criminal charge could be filed on you, the bankruptcy court could dismiss your bankruptcy petition, or both. So how does one pay their bills, thus adding to their debt and not get in trouble with the bankruptcy laws? Let’s look at a few far and extreme examples.

In example number one, a person charges a fur coat, a dinner for 12 at Outback Steakhouse, and several hundred dollars worth of merchandise and services at the beauty salon to their Visa credit card, then files for bankruptcy protection in Georgia. The person in example 2 uses their Visa credit card to purchase some dried pasta, rice, and milk at the grocery store then files for bankruptcy.

Now these are very extreme cases and obviously not the norm for society. If there were to be any charges of fraudulent conduct on any person it would be the person in example 1. The reason being is that this person is raking up charges knowing that they do not have the means to pay the Visa bill when it comes due, and as such, will be taking advantage of the bankruptcy laws that were put in place to protect them.

Bankruptcy laws are written to help those who need help in getting back on their feet, not for people who want to get fur coats for free by using unsecured credit cards. Taking a really far-fetched idea and one that I could never see happening in a million years, let’s just say that the debtor in example 2 is being accused of fraud on their credit card charges prior to the filing of their bankruptcy. It would be very easy for an experienced bankruptcy attorney to argue that the purchases were normal and necessary in their ordinary life. The bankruptcy lawyer could go on to argue that the items purchased on credit were the mere basics of survival in terms of nutrition.

So what steps should you take to avoid committing fraud? If you are starting to face financial insecurity and believe bankruptcy may be in your future, then the first step you should take is to seek the help of a qualified bankruptcy attorney. Even if you don’t definitively see yourself filing for bankruptcy protection, a lawyer will be able to guide you in the right direction and help you avoid costly errors that could occur otherwise. A quick example is someone that borrows money from their retirement plan to pay their credit card bill and then files for bankruptcy. Most retirement plans are exempt from your bankruptcy estate and as such will be touchable by the bankruptcy trustee and court. Learning this fact (as well as many others) prior to taking any action could be well worth the one hour free consultation with a qualified bankruptcy attorney.