Bankruptcy Fraud: How It's Uncovered
Many groups are on the lookout for bankruptcy fraud. The Department of Justice's U.S. Trustees Program (USTP) oversees our bankruptcy system and is the key player in identifying fraud. Its main targets are suspects filing in multiple states, cases involving large sums of money and cases where organized crime might be involved. When fraud is suspected, the USTP passes on the details to the appropriate U.S. attorney and the FBI, the main investigative agency. FBI personnel will begin interviewing people and reviewing financial documents. They may also employ undercover operations and electronic surveillance to gather evidence [source: FBI].
The Internal Revenue Service (IRS) also keeps an eye out for bankruptcy fraud, since it's often a major creditor when someone files. In 2013, for example, the IRS opened 28 bankruptcy fraud investigations; 12 people were eventually sentenced. Besides the IRS, there are 90-plus bankruptcy fraud/mortgage fraud groups and specialized task forces in action trying to sniff out criminal activity with the help of the USTP [source: U.S. DOJ]. Sometimes professionals such as certified public accountants spot fraud, too; nearly half of all bankruptcy fraud referrals to law enforcement come from tips, according to the Department of Justice's Office of Inspector General.
Fraud can be suspected for many reasons: errors or omissions in a bankruptcy filing, filing in several states, transferring assets shortly before filing and lying under oath. People who commit bankruptcy fraud also often commit complementary crimes such as credit card fraud, identity theft, mortgage fraud, money laundering and mail and wire fraud, so uncovering one type can lead to the discovery of another [source: FBI].
If you suspect someone of committing bankruptcy fraud, immediately contact the nearest office of the United States Trustee using its Nationwide Office Locator.