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What Is Bankruptcy Fraud–and How Can I Avoid It?


Filing for bankruptcy is a stressful activity. Many Iowa residents enter the bankruptcy process without much knowledge of the law or what it requires of them. In some cases, a debtor will make an honest mistake in filling out a form or making a required disclosure. This, in turn, may lead a creditor or bankruptcy trustee to raise allegations of fraud.

In reality, bankruptcy fraud is more than a simple honest mistake. It is a serious white-collar crime that can land a person in prison. So it is important to understand what constitutes bankruptcy fraud and how to avoid accidentally triggering such charges in the first place.

Concealing Assets and Misleading Creditors

Let’s start with the basics. Any attempt to hide or conceal assets during the bankruptcy process is considered fraud. When you file for bankruptcy, you are required to list all of your known property and sources of income. In a Chapter 7 case, much of your property will actually be fully protected from your creditor. But you still need to disclose it.

If you accidentally omit an item, you need to promptly notify the bankruptcy court. But if the judge believes that you knowingly made false statements regarding your assets or income, you may be denied a bankruptcy discharge and face potential criminal prosecution.

Along these same lines, you should never attempt to shield assets by giving or transferring them to someone else just before filing for bankruptcy. For example, let’s say you are concerned that you might lose your car during bankruptcy. To avoid this, you sign the title over to your brother. You might think this is a smart move, but in reality, it is just another type of bankruptcy fraud. There is even a specific legal term for this type of transfer–fraudulent conveyance.

If the bankruptcy trustee assigned to your case learns about the fraudulent conveyance, you not only face the consequences described above, but the trustee can actually seek to undo the transfer and “recover” the property on behalf of your creditors.

During a bankruptcy case, a creditor may also bring what is known as an “adversary proceeding” if it believes you committed fraud against them. For instance, the creditor may believe that you lied in order to obtain a line of credit just before filing for bankruptcy. Or perhaps you purchased a bunch of items on your existing credit card knowing that you would never be able to pay off the charges. This can be considered bankruptcy fraud just as much as concealing assets.

Get Help Today from a Southeast Iowa Bankruptcy Lawyer

Again, it is important to emphasize that the vast majority of bankruptcy filers are honest debtors who are simply struggling to make ends meet. You should not feel that you need to lie about your financial status out of a sense of shame or guilt. Bankruptcy is not a moral failing. It is a legal process specifically intended to help people rebuild their finances.

The best way to avoid potential accusations of fraud is to work with an experienced Southeast Iowa bankruptcy attorney who can guide you through each step of the process. Contact the Noyes Law Office today if you would like to speak with a compassionate and understanding lawyer today.


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