Committing fraud before or during bankruptcy can result in serious consequences, including a denial of discharge, a fine, or even a criminal conviction. Read on to learn more.

Filing for bankruptcy is a great way to get a fresh start. But you must play by the rules. Any dishonest dealings before or during the bankruptcy process could rise to the level of bankruptcy fraud, so avoid needless trouble by following these tips:

• accept that you might not be able to keep all of your property
• don’t use bankruptcy to wipe out shady business dealings
• complete your bankruptcy paperwork truthfully, and
• learn the consequences of civil and criminal bankruptcy fraud.

Exchanging Property With Creditors for Debt Relief in Bankruptcy

While the powerful relief afforded by bankruptcy frees you from overwhelming debt, it comes at a cost to your creditors. Bankruptcy law attempts to mitigate this loss by giving your creditors a share of your nonessential assets in exchange for wiping out your debt. You’ll disclose all property you currently own (and asset transfers) and keep the things you can exempt—generally property needed to maintain a job and home.

Fraud That Starts Before Bankruptcy

Fraud doesn’t always play out within the bankruptcy itself—it can occur before the bankruptcy filing. Here are some examples: 

• obtaining credit under false pretenses, such as misrepresenting income or assets on a credit or loan application
• falsifying financial documents used to support a credit request (misrepresenting the debtor’s worth)
• purchasing items on existing credit with no intention of repaying the debt (proven by showing the lack of an ability to pay at the time of purchase)
• charging expensive luxury items or taking out substantial cash advances shortly before filing for bankruptcy (often called “presumptive fraud”)
• knowingly writing a bad check, or
• engaging in deceptive business practices.

Fraud Committed During Bankruptcy

Example of fraud committed during bankruptcy include:

• failing to list an asset on the appropriate bankruptcy schedule to prevent it from being sold for the benefit of creditors
• concealing a property transfer that occurred before the bankruptcy (for example, failing to disclose gifting a car to a friend)
• providing a false document to the bankruptcy court or trustee
• destroying or withholding documents
• knowingly making a false statement in the bankruptcy paperwork or to the bankruptcy trustee at the 341 meeting of creditors, or
• paying someone to help hide property from the court.

Criminal Bankruptcy Fraud

A significant scheme to deprive multiple creditors would be more likely to rise to the level of criminal bankruptcy fraud. Under federal law, cases of criminal fraud are investigated by the Federal Bureau of Investigation (F.B.I.) and aggressively prosecuted by the U.S. Department of Justice (D.O.J.). Although the bulk of the crimes apply to debtor activities (the person who files the case), creditors, bankruptcy trustees, court personnel, and third parties can also be convicted of bankruptcy crimes.

Also, many types of dishonesty are often involved in criminal bankruptcy fraud, some of which are also crimes. You’ll find most bankruptcy crimes in federal criminal statutes. (18 U.S.C. §§ 152, 157.) Here are some examples.

Concealing Assets

• failing to disclose a property transfer that took place before filing the case
• failing to disclose assets in the bankruptcy paperwork, and
• enlisting someone’s help to hide property.

Concealing and Falsifying Information

• filing a false or incomplete bankruptcy form, and
• destroying or hiding records.

Identity Issues and Unauthorized Filings

• filing a bankruptcy case using false identity information
• filing multiple bankruptcies in different jurisdictions, with or with property identification, and
• filing a bankruptcy case on another’s behalf without authorization.

Bribery and Embezzlement

• bribing a trustee or court official, and
• embezzling funds from a bankruptcy estate.

Although bankruptcy can offer a fresh start and an opportunity to reorganize your finances, there are also drawbacks. For example, credit may be very difficult to obtain. Read on to learn more.

What Happens When Declaring Bankruptcy?

Bankruptcy can reduce the debt total you have to pay or in some cases have debt eliminated. An “Automatic stay” is put in place that forbids collectors from attempting to obtain repayment in any manner. This gives you the time to organize your finances with the bankruptcy court and your creditors.

Chapter 7

In this form of bankruptcy, it is probable you will have to liquidize some assets to pay a portion of what is owed. Some states have laws saying certain assets, such as a car, house or retirement account are not eligible for liquidation.

Chapter 13

This is a reorganization of existing debt so they can be paid off either in full or partially during a three to five year window. But if you do not maintain payment, creditors may try to liquidate your assets.

What Happens to My Credit if I Declare Bankruptcy?

Undoubtedly, your credit will be damaged by filing for bankruptcy. With Chapter 7 bankruptcy it may remain on your credit file for ten years. Chapter 13 is slightly more preferable from a credit standpoint as at least you will be paying some of your debt, however it will still stay on your credit report for up to seven years. Once your bankruptcy is complete and you no longer owe any debts, obtaining credit will be difficult. Certain lenders do work with people who have faced bankruptcy but usually at less favorable rates. 

Are Bankruptcy Filings Publicly Available?

Bankruptcies are considered a public record and copies can be obtained through the court system software known as PACER.

Will Bankruptcy Affect My Job or Future Employment?

Some employers, especially those in Government or financial sectors do run credit checks and it is conceivable your career may be negatively impacted by a poor credit report following bankruptcy. However, it will not show up when an employer does a regular criminal background search prior to your employment.

Source: https://www.experian.com/blogs/ask-experian/what-happens-when-you-file-bankruptcy/

You won’t necessarily lose your home in Chapter 7 bankruptcy—especially if you don’t have much home equity and your mortgage is current. Whether you can keep your home after filing for Chapter 7 bankruptcy will depend on the following factors:

• whether your mortgage is current
• if you’ll be able to continue making the payments after bankruptcy
• how much equity you can protect with a homestead exemption, and
• the amount of equity in your home.

If you’re behind on your payment, in foreclosure, or have more equity than you can protect, you’ll have a better chance of keeping your home in Chapter 13 bankruptcy. Filers faced with those circumstances should learn more about choosing between Chapter 7 or Chapter 13 when keeping a home.

Your Home and the Chapter 7 Bankruptcy Trustee

Chapters 7 and 13 work very differently, so it’s important to understand what to expect—especially if you want to keep valuable property in Chapter 7. Here’s how it works.

After filing for Chapter 7, your property will go into a bankruptcy estate held by the Chapter 7 bankruptcy trustee appointed to your case. However, you don’t lose everything because you can remove (exempt) property reasonably necessary to maintain a home and employment. The trustee will sell any remaining assets and distribute the sales proceeds to your creditors.

Here’s the tricky part—if you make a mistake, it’s unlikely that the bankruptcy judge will allow you to dismiss the case, and you could lose the house. So you must follow the rules carefully.

Are Your House Payments Current?

You’ll likely lose your home if you’re behind on the mortgage payment when you file for Chapter 7. Although the automatic stay will temporarily stop a foreclosure, the best thing you can hope for is delaying the process for a few months.

• Why filing won’t cure a default. Chapter 7 bankruptcy doesn’t provide a way for you to catch up on the overdue payments. This presents a problem because a mortgage is a secured debt, and you can’t wipe out the lien in Chapter 7 bankruptcy. The lender can foreclose after the automatic stay lifts, and you’ll lose the house.
• What will happen if you file. The lender will either ask the court to lift the automatic stay to allow foreclosure proceedings to continue (which the court will likely grant if the trustee doesn’t plan to sell the home) or wait until the bankruptcy ends, proceed with foreclosure, and then sell the house at auction.
• Chapter 13 bankruptcy can help. If you’re behind and want to keep your home, the better option is to file a Chapter 13 case. Unlike a Chapter 7 bankruptcy, it has a provision that allows you to catch up on mortgage arrearages over the course of a three- to five-year repayment plan. Also, if you have more equity than you can protect with a homestead exemption (more below), you can pay your creditors the value of the nonexempt equity in the plan, as well.

Can You Continue Making House Payments After Chapter 7 Bankruptcy?

It’s also important to be sure you can afford to continue paying the mortgage payment after a Chapter 7 bankruptcy. Losing the house after your case might put you in a worse financial position. Why? If the lender couldn’t sell the home for the amount you owe, you’d be stuck with a deficiency balance depending on the laws of the state you live in.

How Much Equity Is in Your Home?

If your mortgage payment is up-to-date, your next step will be determining how much equity exists. You’ll start by valuing your home. Then you’ll subtract any outstanding mortgage balance from the home value. The equity would be the amount you’d have in your pocket if you were to sell the house.

If you don’t have any equity, you’re in good shape—trustees don’t sell houses without equity. Otherwise, you’ll need to be able to protect your equity with a bankruptcy exemption to avoid losing the home in Chapter 7 bankruptcy.

Can You Protect Your Home Equity With Bankruptcy Exemptions?

State exemption statutes list the property its residents can protect in bankruptcy. Some states allow residents to choose between either the state exemption list or the federal bankruptcy exemption scheme. Either way, almost all states allow residents to protect some home equity with a homestead exemption. You might be able to exempt even more with a wildcard exemption.

If your exemptions adequately cover your equity, the trustee won’t sell your home in a Chapter 7 bankruptcy. However, if your exemptions protect only a portion of it, the trustee will sell the house, pay off the mortgage, give you the amount you’re entitled to exempt, and use the remainder of the sales proceeds to pay creditors.

Keep in mind that the trustee will take into account the costs to sell the home. If, after deducting sales costs, the amount remaining isn’t enough to make a meaningful payment to creditors, the trustee will abandon the property (and you’ll get to keep it).

Learn more about your home in Chapter 7 bankruptcy.

Source: https://www.nolo.com/legal-encyclopedia/lose-home-file-chapter-7-bankruptcy.html