The Facts

• There were more than 1.1 million bankruptcy filings in the U.S. in 2008 with an estimated 10 percent of those being fraudulent claims. The IRS is the creditor in more than 40 percent of bankruptcy hearings. Bankruptcy filings have steadily increased over the past decade due to several factors, not limited to poor financial decisions such as borrowing and spending more than they can afford. Economic turmoil that includes heavy job losses, foreclosures, failing businesses and investments have all contributed to the recent spike in bankruptcy filings and fraud activity.
  
  

Types of Bankruptcy Fraud

• People commit bankruptcy fraud in several ways. Parties attempt to hide their assets from repossession by claiming that their property has either been sold or they don't posses it anymore. Some falsify or alter documentations in order to conceal information that may prove they have assets or income to pay creditors. They may file claims multiple times under different aliases in several states. They also may try to bribe the appointed trustee who is in charge of the investigation.
  
  

Significance

• The repercussions of fraudulent claims goes beyond handing out a sentence or imposing a fine. The high number of filings permits some to sneak through having cheated on paying for services or product from honest hardworking businesses. Failing to pay the IRS shortchanges federal income tax and creates a burden when it comes to funding federal programs. Parties who honestly file for protection sometimes get lumped in with those who have beaten the system, and overall public confidence in the bankruptcy process takes a hit.
  
  

Misconceptions

• If a party still is suspected of committing bankruptcy fraud after the case has been ruled on doesn't necessarily mean that the ordeal is over. A creditor or a law official can file a motion with the courts to reopen the case. This action is aimed to prove fraud has been committed and the party may be able to satisfy some or all of its debt.
  
  

Warning

• Filing a false claim for bankruptcy is a federal offense. The FBI, IRS and the Department of Justice all work to find and prosecute people who are trying to avoid paying their debt. If a party is found to have filed a bankruptcy motion fraudulently, they face stiff penalties such as fines and/or imprisonment. All assets owned by the party will be seized and liquidated in an attempt to pay off creditors.