What are possible penalties for bankruptcy fraud?

Bankruptcy fraud is a serious offense. Bankruptcy cases where fraud is proven are, at minimum, thrown out of court. The filer will likely also face penalties and stiff fines. Because fraud is a federal offense, these penalties climb quickly and in some cases, are capped with criminal prosecution. The maximum penalties for bankruptcy fraud are a $250,000 fine and/or five years in federal prison.

Your Debts and Bankruptcy Fraud

Section 523(a)(2)(A) of the Bankruptcy Code excludes from discharge "any debt . . . for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by . . . false pretenses, a false representation, or actual fraud." 11 U.S.C. § 523(a)(2)(A).

This means a person who commits bankruptcy fraud will have his or her case thrown out of court. In most situations, depending on the size of the debt and the severity of the crime, the court will refuse to discharge the debts, and the filer will remain liable for them. In order to pay creditors, the court also has the right to liquidate the person's assets. In some cases, a deal will be struck where, for example, a plaintiff will agree to accept half of the debt in exchange for avoiding half of the jail time associated with the fraud.

The Definition of Bankruptcy Fraud

If you're reading this and you're afraid that you left something out of your bankruptcy paperwork and that it will be considered fraud, don't worry. The whole idea behind the law of bankruptcy fraud is that your intent to defraud must be punished. As such, obvious mistakes and omissions are not punished.

With that said, if you left something out of your case's paperwork, the bankruptcy court will probably require you to refile large portions of it – often you'll have to start the whole thing over again if mistakes are serious enough. This can result in drastically increasing the total amount of time and money you put into the case. The court will also ask you to explain the mistakes and will want to verify how they took place before letting you proceed.

Getting Help to Avoid Bankruptcy Fraud

Avoiding bankruptcy fraud (and the cost of non-fraudulent errors) is reason enough to do the paperwork right the first time. To ensure you move through the bankruptcy process without problems and do not make costly mistakes or omissions, it is a good idea to consult with a bankruptcy lawyer for advice.