When an individual takes on financial responsibility, they have an obligation to their creditors. Whether someone accrues credit card debt or establishes a payment arrangement with a business, they should do their best to fulfill their financial obligations.
Occasionally, people may need to use their resources, such as their bank accounts or other assets, to fulfill their obligations to creditors if they can’t fit payments into their budgets. Unfortunately, those who have already fallen behind on their financial obligations may take issue with the idea that they might lose future income or some of their assets to their creditors.
While most people who file for bankruptcy follow the law, some people try to manipulate the system for personal gain. They may engage in fraudulent behavior to avoid responsibility for debts that they could potentially repay. Thankfully, creditors do have rights when they suspect fraud during a debtor’s bankruptcy.
What constitutes bankruptcy fraud?
Numerous types of conduct may violate federal bankruptcy codes and leave someone open to allegations of fraudulent conduct. Intentionally omitting personal resources from the inventory of assets provided to the courts is a common form of fraud.
When creditors have information about a debtor’s personal holdings, they could potentially raise questions about omissions in the documents filed with the bankruptcy courts. Other times, there may be transfers or gifts in the weeks leading up to a bankruptcy filing that could be fraudulent. Any attempt to give away or shield property by changing ownership records after someone already owes a debt could constitute fraud.
For example, if someone moves their most valuable personal holdings into a trust after taking on a debt but before filing for bankruptcy, those transfers could be a form of fraud. Creditors could request that the courts dismiss the bankruptcy filing in some cases or hold the debtor accountable for the fraudulent transfers that they completed.
While the focus of bankruptcy is often the protection of individuals who owe more than they can reasonably repay, there are still rules limiting the activity of filers and protecting the rights of creditors. Holding debtors accountable for fraudulent activity prior to or during a bankruptcy could help creditors receive the repayment they deserve.