ANSWERS: 1
  • Millions of bankruptcy cases are filed every year in the United States. With more and more individuals and companies declaring trouble in repaying their debts, the number of fraudulent bankruptcy claims has risen also.

    Broad Definition

    Bankruptcy fraud is committed when a company or individual falsely files for bankruptcy to avoid paying creditors.

    Types

    Bankruptcy fraud includes asset concealment, petition mills, bribery and filing false claims. Seventy percent of all fraudulent cases are committed by asset concealment. Petition mills, in which companies posing as consulting firms fraudulently file bankruptcy in the name of financially troubled individuals, are also on the rise.

    Frequency of Fraud

    According to the IRS, 1.7 million people filed for bankruptcy in 2003. About 10 percent of all bankruptcy filings are believed to be fraudulent to some degree, according to the Department of Justice. The FBI and IRS work with the Department of Justice to investigate this criminal activity. However, only 0.1 percent of all bankruptcy filers are convicted of fraud, according to the FBI.

    Penalties

    Bankruptcy fraud is a federal offense. Individuals found guilty of bankruptcy fraud face penalties of up to five years in prison and/or a $250,000 fine.

    Effects

    As bankruptcy fraud continues, perception and compliance issues grow. Honest citizens may be viewed negatively when they file for bankruptcy. Also the lack of fraud convictions may lead more people to resist submitting all of their taxable income and information in bankruptcy cases to the IRS.

    Source:

    Federal Bureau of Investigation

    Bankruptcy Fraud

    Bankruptcy Fraud Rarely Caught and Prosecuted

    Resource:

    Internal Revenue Service

    Bankruptcy Statistics

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