Types of Bankruptcy Fraud (Part II)

Hi readers....

As promised, today we will discuss further on types of bankruptcy fraud. This discussion will take few posting since we have numbers of bankruptcy fraud to discuss. First, let's discuss the most popular bankruptcy fraud, concealment of assets.

Concealment of assets represents the most substantial numbers of bankruptcy fraud in the US because this concealment defeat the main purpose of the bankruptcy system (Tighe, 1998). Several authors have describe concealment of assets as follows:

Cohen & Clough (2010) states:
Conceal does not mean merely to secret or hide assets. It also means to prevent the discovery of the assets or to withhold knowledge of the assets. (p.18)

Tighe (1998) explained that concealment of assets can happen in the filing documents during the pendency of the case; or concealment of assets before the the bankruptcy is filed; or even the receipt of asset in order to aid and abet another's concealment of assets.

When a debtor attempts to preserve property for future use and to deprive creditors of their fair share of assets (Brown, Netoles, Rasnak & Tighe 1999).

Some possible schemes are (Brown, Netoles, Rasnak & Tighe 1999):

1. Failure to schedule assets: In this scheme, the debtor failed to fulfill his/her obligation to list all estate property in the debtor's schedule. 
2. Undervalued assets: Even though the assets are listed, but their value is  understated or estimated to be worthless. The purpose is to influence the trustee and creditors not to liquidate those assets. 
3. Transfer of assets Pre-petition: The debtor transfers assets with small or no consideration to third parties. This transfers was made with the agreement that after the case is closed the property will be returned to the debtor. 
4. Transfer of assets Post-Petition: Debtor sells or transfers assets without court approval. And if the debtor does seek approval from the court, the debtor failed to disclose his relationship to or agreements with the purchaser. For example, the debtor sells the property at lower price to a straw buyer who agrees to pay the difference to him later.

To be continue....

References:

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

Cohen, M.S., & Clough, A. (2010). Bankruptcy Fraud. California CPA, January/February 2010, 16-17.

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