Bankruptcy Experts

Bankruptcy fraud is motivated by the fact that assets, will be taken from a bankrupt/ insolvent person and given to someone else. Bankruptcy fraud is a growing concern among bankruptcy professionals, especially now that bankruptcy (corporate and individual) is on the increase.

Bankruptcy which is the legal process that allows a debtor to either work out a payment plan to settle his debt or to liquidate assets that will be distributed to creditors in their order of preference is prone to fraud as large amount of fund is involved. Bankruptcy fraud can be a criminal matter or civil matter. When bankruptcy fraud is a criminal matter, it will be handled (investigated) by the FBI or other law enforcement agencies but when it is a civil fraud case, it can be investigated by trustees (fraud examiners, accountants, lawyers, creditors, or creditor’s committees appointed by the bankruptcy courts).

Abuses in bankruptcy proceedings will eventually erode the confidence that the public has reposed on the arm of government that deals with bankruptcy. Cases where creditors and investors complain of not getting the monies defrauded from the hands of the debtors recently took a sudden surge. Most official receivers now employ all kinds of trick to keep part of the proceeds from the assets of failing debtors.

This is making creditors and investors to lose faith in the system that is meant to protect their interest. This situation if not curtailed can have a ripple effect in the economy- some people even argue that this creditors and debtors lose of faith in the bankruptcy system is partly responsible for the recently experienced economic meltdown.

The increase in the number of bankruptcy cases filed with the bankruptcy court has culminated into great lose of financial and other resources with economic value. Statistics has shown that most bankruptcy fraud comes in the form of assets concealment of the debtor.  Concealment prevents these assets from being liquidated and transferred to the creditors. This can be accomplished in a variety of ways. For example, a debtor might transfer his assets to other entities while at the edge of filing for bankruptcy. Accountants preparing the statements of affairs of an insolvent person should always look out for signs of this kind of bankruptcy fraud.

Another kind of bankruptcy fraud that is on the increase is the Petition Will fraud schemes. The supposed aim of this scheme is to help insolvent people keep their homes and avoid eviction from their homes. These fraudsters places adverts on various media promising to help their clients avoid eviction while all they will do is to help the financially troubled individual prolong the inevitable (bankruptcy).

Other bankruptcy fraud schemes include: multiple filing, false statements, trustee fraud, attorney fraud, forged filings, embezzlement, credit card fraud, bust-outs (planned bankruptcy), mortgage fraud, insurance fraud, etc.

In the U.S, title 11 of the U.S Code is referred to as the Bankruptcy Code. The code has Federal status with the intention of protecting creditors and debtors in equitable and fairly perceived manner. Chapters 1, 3, and 5 of the bankruptcy code contain general provisions that apply to all bankruptcies. Chapters 7, 11, and 13 apply to specific types of bankruptcy. Section 327(a) of the bankruptcy code allows trustees to employ accountants, attorneys and other professionals with the approval of the court to represent or assists the trustee.  In the same manner, section 1103 allows creditor’s committee to employ; attorneys, accountants, or their agents to perform services for the committee.

Accountants and lawyers participating in the bankruptcy proceedings should be aware of the civil liability that may arise for false accusations. The debtors have little to lose by challenging your work as an investigator. Debtors can instigate aggressive attacks thereby placing you as a bankruptcy accountant or bankruptcy lawyers on the defensive rather than offensive which is very bad for you.