Bankruptcy and Fraud: How to Avoid Getting in Trouble With the Bankruptcy Court

Despite what many people think about bankruptcy, this process is designed to give honest people a second chance by helping them deal with overwhelming debt. Bankruptcy is not about helping lazy people or deadbeats who simply don't want to pay their bills. If you've ever been in difficult financial circumstances, you know that sometimes you can do your best and still end up in financial disaster.

With this in mind, you would do well to remember that Congress has enacted laws to help people who really need relief from their debts. The purpose of Chapter 7 proceedings is not to help people who have committed fraud or who are just trying to get out of their financial obligations even though they have the means to pay. You have to proceed carefully when declaring bankruptcy in order to make sure that you are not coming across as committing some sort of fraud.

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One problem that seems to come up frequently is that people will make large purchases not long before they end up filing for bankruptcy. Think about this for a moment. What is the court supposed to think if you purchase a $1000 plasma television with your credit card and then turn around and file chapter 7 a few weeks later? It stands to reason that you should have known better. This kind of scenario suggests that you were planning to purchase the item and then wipe out your debt obligations a few weeks later.

If you have already made such a transaction, you need to speak with a bankruptcy lawyer to find out what the best option is. Your lawyer may instruct you to simply wait a few months before filing, or there may be some other strategy that you should follow. We just have to make sure to avoid any appearance of fraud.

The idea behind fraud is that you actually never intended to pay the debt. It's like writing a bad check on purpose. If you write a check and it bounces, this could be a simple oversight on your part. However, if you wrote the check when you knew there was no money in the bank, you can actually be prosecuted for fraud. It's really a matter of whether your creditor thinks it is worth pursuing or not.

These kinds of mistakes can determine whether a particular debt is wiped away in an otherwise successful bankruptcy discharge. In the worst-case scenario, your entire petition may fail, and you can even be prosecuted for charges of fraud like we mentioned above.

This is why it is imperative to speak to a lawyer instead of trying to handle everything yourself. There are lots of little things that you can get wrong. For example, you might repay a loan to a family member or try to transfer assets into someone else's name shortly before filing the petition. In these cases, the trustee overseeing the case can actually recover this money from your family members!

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