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Bankruptcy Fraud

For many citizens out there the option of filing bankruptcy is something that can weigh very heavily on the mind. Bankruptcy can be a very helpful last option if someone is in a position where they simply are buried in debt with no conceivable way of satisfying their creditors. It allows for a discharge of debts. It is definitely not a decision that most people would take lightly or without much deliberation. It is an available course of action provided to honest citizens out there that have exhausted their choices.

Unfortunately, there are those out there that would take advantage of the equivalent of a financial reboot button. According to the IRS government website, the United States Bankruptcy Court reported 1.2 million filings in fiscal year 2012 for Bankruptcy Fraud.

Different Types Of Bankruptcy Fraud Out There:

There are mainly 3 types of Bankruptcy Fraud either perpetrated by or against consumers.

1. Concealment of client’s assets

This is probably the most common type. This occurs when a client or debtor files for bankruptcy but actually omits or conceals assets during the phase of declaration within the process of bankruptcy filing. Clients or debtors may attempt to transfer the ownership of said assets to friends or family or transfer them inconspicuously to accounts abroad. Examples of this have been:

  • United States v. Hughes, 401 F.3d 540 (4th Cir. 2005)
  • United States v. Dennis, 237 F.3d 1295 (11th Cir. 2001)

2. Multiple Filing

This can occur when a client or debtor attempts to file for bankruptcy in multiple states. On both state filings, the debtor may incompletely list assets to avoid possible liquidation. Many times this type of filing is performed under an alias, aka, or false surname.

3. Petition Mills

In this type of bankruptcy fraud, often impoverished or just unknowing tenants are targeted under the ostensible offer of avoiding eviction. The predatory firm then collects the debtor’s data and charges tenants exorbitant late fees under the false pretenses that they are fighting eviction on the tenant’s behalf. On the contrary, for they actually file for Bankruptcy on the tenant’s behalf, deplete tenant’s cash, and do severe damage to their credit.

Corporate Bankruptcy Fraud:

Here are a few types of Bankruptcy Fraud from the business side, also known as corporate fraud:

Bust Outs

Bust outs are where companies are created for the intention of purposeful failure. The owner of the business acquires merchandise from creditors, liquidates said goods (often for cash), and fails to pay suppliers. Bust outs can be achieved from buying a pre-existing company by using their good credit standing to acquire goods without the intent to pay, and then liquidating those goods immediately for cash.

Examples Of Bust Outs:

Distributors of Goods

In this type of bust out, an entity may operate for a short duration and establish good credit standing with large goods manufacturers. When orders quickly increase, payments are not satisfied. Techniques are implemented to further stall creditors as well. These goods are sold to retailers at below cost for cash and subsequently a bankruptcy petition is filed. Schedules filed by the debtor after the filing report then trade debt owed to consumer good manufacturers with inventory unusually low compared to the date that the debt was actually created.

Retail Bust Outs

This is where a merchant rents retail space but fails to pay suppliers or rent, and then files bankruptcy to stop eviction and gain additional time to orchestrate illegal operations. These retail stores often are part of distributor bust outs because they offer outlets for consumer products. This could be discount stores, jewelry stores, and Oriental rug stores.

Travel Agency Bust Outs

Agency opens and secures authorization plates from airline agency to write tickets. After paying the first few bills, a large number of tickets, many times tickets to locations abroad, are written and not paid for. These tickets are then sold for cash in discount sales. Travel agency may also report the authorization plates stolen and continue the fraud scheme. Authorization plates and blank ticket stocks often are missing when the trustee or airline company tries to recover.

Conclusion

Bankruptcy is meant to help someone or a company regain a new start in a tough situation. It should never be used for personal gain.

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