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Milwaukee, WI Bankruptcy Law Blog

Sunday, November 19, 2017

Bankruptcy Fraud Is A Bad Idea

A doctor out in Montana is facing five years in prison and a $250,000 fine if prosecutors prove he committed what they allege to be bankruptcy fraud.

The doctor claims he is innocent, but there is evidence that he hid $309,686 and a 2001 Harley Davidson motorcycle from the bankruptcy trustee, and transferred $539,736 to another person because he knew he would soon be filing for bankruptcy.

These are big ticket items, and the doc is a prominent person, so the case is making headlines, but this kind of fraud is actually pretty common in Chapter 7 cases. I’ve seen too many people to count busted for lying about their finances, transferring money to others, or for going on a shopping spree funded by credit cards they expected to be wiped clean.

The court has set up systems to catch fraud, so getting away with a shady deal that puts you in a better place than the law says you should be is rare. And when you get caught, the penalties are steep.

Perhaps you are familiar with the fate of Teresa of Joe Giudice? The Real Housewives of New Jersey reality show stars both served time behind bars for bankruptcy fraud. The judge put them there because it’s the law, not because it made the show’s ratings go up.

Some of this fraud may occur because there is a lot of misinformation out there about how debt forgiveness works, and about what assets you can keep if you file for bankruptcy. The reality is not all debts are forgiven and not all assets are liquidated.

What debts aren’t forgiven?

There are certain types of debt that stick around, even if you file for bankruptcy. For example, back taxes, child support payments, and student loans are rarely, if ever, forgiven. You can also choose to keep some debt; like if you want to stay in your current house you can keep your mortgage debt in place.

There are also circumstances where you will be forced to pay back debt that is typically forgiven, like credit card debt. If you buy a bunch of luxury goods or do a cash advance within 90 days of filing for bankruptcy, the credit card company can file a claim against you and ask the bankruptcy court not to forgive your debts.

What assets can you keep?

You might be surprised how much stuff you get to keep even if you file for bankruptcy under Chapter 7, where assets are liquidated to pay off debt. You can often hold on to your home, your car, and important personal items like your wedding ring.

Rather than risk a fraud conviction by trying to hide or transfer assets, talk with an experienced bankruptcy attorney about what you can do to preserve assets that are important to you.

The juice isn’t worth the squeeze.

The bankruptcy process is simply not a harsh as most people imagine, and the consequences if you get caught committing fraud are so great, that committing bankruptcy fraud is simply not worth the risk.

 


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| Phone: 414-436-8428