Bankruptcy fraud is any activity done by the debtor or someone acting on the debtor's behalf that's intended to manipulate the bankruptcy system to the benefit of the debtor and/or to the detriment of the creditors or the court system. There are three major types of bankruptcy fraud but all fraud does not fall into these categories.
Let's take a look at them:
- The most common type of bankruptcy fraud is the concealment of assets by the debtor. This basically involves the debtor hiding cash or other valuable property in an attempt to avoid paying creditors. For example, a debtor might take money out of a bank account and place it in a safe in anticipation of their bankruptcy filing. Or, a debtor may decide to transfer an asset into the name of a friend or relative to avoid including it in the bankruptcy estate. For example, transferring a house to a family member or friend right before filing bankruptcy could be categorized a bankruptcy fraud.
- Petition Mills are another type of bankruptcy fraud; but in this case the debtor is often an unwitting victim. Basically petition mills are schemes in which scammers file bankruptcy on behalf an individual who is facing eviction and then charges them high fees while they drag out the bankruptcy case for months even though the debtor's eviction is imminent.
- Multiple filings are another type of bankruptcy fraud which involves debtors who file multiple bankruptcy cases, sometimes in multiple states in an attempt to manipulate the bankruptcy system. The cases are often not completed and just filed to buy more time or in some other way gain an advantage over their creditors.