Types of Bankruptcy Fraud (Part I)

In our previous post, we have shared on what is bankruptcy fraud and relevant legislation in Malaysia. Now, we will discuss on why people commit bankruptcy fraud and types of bankruptcy fraud.

People Commit Bankruptcy Fraud

Bankruptcy system is created to give an individual or organization a second chance to reorganize their debt or to equitably distribute the non-exempt assets of the debtor to creditors. This system works on the assumption that a debtor will make full disclosure of their assets and liabilities. This disclosure will help the final disposition be conducted in accordance with requirements of the law (Brown, Netoles, Rasnak & Tighe, 1999).

According to Kerwin (1995), a person commit bankruptcy fraud because he is push by emotional and financial strain to conceal his assets to defeat the bankruptcy law. Besides that, there are increasing sophistication of white collar criminals who use bankruptcy system to facilitate criminal activity or conceal it from speedy detection (Tighe, 1998). In summary, we can conclude that, people commit bankruptcy fraud when they try to go against the bankruptcy system with intention to deceive or cheat. Details on this item will further discuss in our coming post on perpetrators behavior explained using relevant fraud causation theory.

Types of Bankruptcy Fraud

Bankruptcy Fraud can be categorized to several types as following:

1. Concealment of assets

2. Bustout

3. Multiple Filing

4. Petition Mills

5. Bribery or extortion

6. False Oath, Statement and Declaration

7. Collusive Involuntary Bankruptcy

Concealment of assets is the most popular bankruptcy fraud [(Lanigan, 2013); (Tighe, 1998); (Kerwin, 1995) & (Brown, Netoles, Rasnak & Tighe, 1999)]. Besides that, according to Lanigan, (2013), bankruptcy fraud is often coupled with other financial crimes such as identity theft, stolen credit card, stolen social security numbers and filing bankruptcy in several states.

Explanation on each type of bankruptcy fraud will be discuss in our next post. Stay tune and don't forget to visit us for more information on this interesting subject. 

Have a good day guys!!

References:

Brown, J.B, Netoles, B., Rasnak, S.T., & Tighe, M. (1999). Identifying Bankruptcy Fraud, Credit Research Foundation.

Kerwin, R.J. (1995). Bankruptcy Fraud. The Secured Lender, 51 (6), 84-90.

Lanigan, (2013). Top Four Types of Bankruptcy Fraud [Online] Availabe at http://laniganpl.com/2013/04/08/top-four-types-of-bankruptcy-fraud/

Tighe, M.A. (1998). Bankruptcy Fraud: Article: A Guide To Making A Criminal Bankruptcy Fraud Referral. American Bankruptcy Institute Law Review.