Bankruptcy Fraud Varieties

If you are considering going bankrupt, you should make sure you really need this option. Otherwise, you might be investigated for bankruptcy fraud, which usually results in punishments that include fines and jail time. Consider the most common types of bankruptcy fraud so that you have an idea of the actions to avoid during this process.

You should know that authorities might investigate you if you file just after making a few large purchases. For example, if you decide to buy a house, a car, or a big-screen television, and then decide that you are bankrupt a few months later, you will likely not be allowed to keep these items. The same goes for loans and credit card cash advances. This is because some people do this purposely, knowing that they will never have to pay back these items once they start the bankruptcy process. If you have recently purchased large items without knowing that you were going to run out of money, you can expect to be investigated, so be prepared to prove the legitimacy of your claim.

Another common type of fraud is when people try to get rid of certain assets just before filing, with the intention of buying them back afterward. For example, some people may assume that they will not be able to keep their house after the process is over, so rather than lose it to just anyone, they might sell it to family members. They then plan to buy it back once their lawyer says it is okay. While this might sound like a good idea, it is frowned upon by the court, and may lead to punishment or the requirement of paying back creditors that had previously written off your account as a loss. The same goes for smaller assets, such as cars, jewelry, and cash.

Finally, you should know that you are only allowed to declare bankruptcy a limited number of times in your life. However, some people try to get around this rule by filing in various states, either under their own name or someone else's. This allows them to continually purchase large items and take out loans, and then never pay them back. Thus, such people may live quite an extravagant, carefree lifestyle, until they get caught, of course. Avoid the punishment associated with this type of illegal action by only filing once, and only using your correct information.

These are just the main kinds of fraud that people may attempt to commit. You might not have ever thought of doing these actions, but certain behavior may lead to you being investigated anyway. Knowing these common scams can help you be aware of what not to do if you want to avoid being targeted by authorities, as sometimes-innocent people are accused of these deceptions despite not knowing that they are wrong. For example, you might not think that hiding or temporarily selling assets is illegal, and you may coincidentally have bought a car a few months before going broke. Fortunately, as long as you know to arm yourself with proof of your innocence, you should be able to avoid penalties.