How Bankruptcy Fraud Works

What happens if you hide assets during a bankruptcy filing?
What happens if you hide assets during a bankruptcy filing?
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Times are tough. You lost your good-paying job, can't find another and the bills just won't stop coming. You feel like you have no choice but to file for bankruptcy. Under bankruptcy laws, you need to truthfully report all of your assets, like your home, cars, jewelry and furniture. The items can then be sold to pay off your debts. But you don't want to lose Aunt Vina's diamond ring, or that comfy new leather recliner you just bought. What to do ...

How about just giving the ring and chair to your daughter? Then, in a few years when all of this bankruptcy stuff is over, you can take the items back. Guess what? If you do that, you've committed bankruptcy fraud, which is a felony. You could be fined for this white-collar crime and even land in jail.

The U.S. bankruptcy system is set up to help people get back on sound financial footing so they can become economically productive members of society. It's not a punitive system. But it also aims to help creditors -- those who are owed money -- get as much of their IOUs paid back as possible. Because of this dual purpose, the bankruptcy system is counting on debtors to truthfully disclose all of their assets and liabilities so a fair settlement can be made. Creditors must also be forthcoming about the amount a debtor has already repaid.

Unfortunately, debtors (and to a much lesser extent, creditors) sometimes try to take more than their fair share. This has been a growing problem since the early 2000s, when bankruptcy became less stigmatized. Once that happened, a surge in filings -- and abuse -- followed [source: FBI].