How To Avoid Committing Bankruptcy Fraud

Chapter 7 bankruptcy protection is a tool you can use to help alleviate debt. In order to benefit from the legal protection it can provide, you need to follow the rules.

Most people that file for personal bankruptcy in Michigan aren’t trying to break the rules or the law. However, sometimes mistakes are made unwittingly that constitute bankruptcy fraud. Mistakes can be made before filing and even during your case.

Here are some ways to avoid committing fraud and successfully getting through a Chapter 7 bankruptcy.

What NOT To Do Before Filing For Chapter 7 Bankruptcy

Sometimes, errors and omissions made before filing your case can come back later to hurt you. If you’re considering filing for bankruptcy, then you should plan ahead. The court will expect that you have acted in good faith to be fair to debtors and the law within your circumstances leading up to bankruptcy. Actions that appear to have been made with the intention of skirting the rules or taking advantage of bankruptcy protection could lead to legal trouble.

What is considered a failure to act in good faith? This could include gifting property — commonly things like cars, vacation property, boats or outdoor toys, and even bank accounts — to loved ones or friends so that the court cannot force you to use it to satisfy debts. Remember that the court will look backward at your finances and may question any transaction in the months or years leading up to the filing date.

In addition, taking on credit without the intention to pay it off is failure to act in good faith. If you run up new debt during the time leading to bankruptcy without any corresponding reason, the court could consider it presumptive fraud. This is made worse by attempts to use false information to open accounts, transfer debts, or manipulate business or salary information. Keep your credit use in line with your needs.

What NOT To Do During Your Chapter 7 Bankruptcy Case

Once you start preparing paperwork for the bankruptcy court, avoid any temptation to falsify documents pertaining to your finances, assets, or debts. One common way that bankruptcy fraud happens is when the person fails to list an asset that could be used to satisfy debts. Sometimes this happens by accident, but even an error could affect the appearance of your petition before the judge.

Do not destroy any records of your assets, transactions, or expenses — even if you feel that they might hinder your case or that it would be unfair. Most asset transactions are more easily verified through outside research than you might think. Similarly, attempting to lock out any creditors through false or misleading statements will also harm your case, as the court and creditors will be thorough.

Be sure to go over all bankruptcy documents with your attorney to ensure that you have answered all questions as honestly as possible. Try not to leave questions unanswered, since this will heighten suspicion. There may be extenuating circumstances for some unusual transactions — such as inheriting money that was then dispersed in accord with the deceased person’s wishes — so prepare explanations in advance.

Of course, the biggest mistake you can make is NOT hiring a Chapter 7 bankruptcy lawyer. If you’re considering filing for personal bankruptcy, contact The Mitten Law Firm today.

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