Bankruptcy fraud is a serious allegation that can be made against even well-meaning but inexperienced debtors. One of the most common types of bankruptcy fraud is concealing assets to avoid having to forfeit them. During Chapter 7 bankruptcy, the debtor must list all assets and any asset that is nonexempt is liquidated to pay off creditors. If the debtor fails to list an item, it is not liquidated. While the purpose of bankruptcy fraud statutes is to prevent and penalize intentional fraud, even a forgetful or inexperienced debtor may be prosecuted for concealment of assets.
One popular method of concealing assets is through property transfer to others, including friends and family members. In some cases, well-intentioned debtors try to save property or help a loved one or business associate, not knowing the conveyance may be considered fraud. However, if a fraudulent conveyance is discovered, the bankruptcy trustee may avoid it, treating it as if the transfer never occurred, and then selling it to pay off debts, while the debtor may be penalized. There are many scenarios in which a trustee may avoid a transfer that occurred on or within two years of filing the bankruptcy petition, including:
- Transfer with actual intent to hinder, delay, or defraud a creditor
- Transfer where the debtor received less than the reasonably equivalent value of the item
- Debtor was insolvent on the date of transfer or become insolvent because of it
- Debtor intended or knew he or she would incur too high a debt
- Debtor transferred the property to a business insider under an employment contract but not in the ordinary course of business
Even in Chapter 7 bankruptcy, where assets are liquidated, many assets may be saved through proper classification of property as well as prebankruptcy strategizing. Obtaining the assistance of a reliable Lancaster bankruptcy lawyer at the outset is the best way consumers and businesses can legally protect their assets and interests.