Thousands of individuals and businesses file for bankruptcy each year in Florida, and statistics suggest that many of them commit fraud. According to the Department of Justice, about one in 10 bankruptcy filings has fraudulent elements. When researchers from Cornell Law School looked into this issue, about 70% of the fraud they found involved concealing assets. This can be done by transferring assets to friends or relatives, or it can be accomplished by what is known as debt restructuring fraud.

Debt restructuring fraud

Debt restructuring fraud is usually associated with business bankruptcies, and it involves having the terms of outstanding debts modified in a way that favors the borrower. Renegotiating loan terms is not illegal, and banks often agree to lower interest rates or extend payment deadlines to improve their chances of being paid back. However, debt restructuring becomes a form of fraud when borrowers modify the terms of their debts to gain an advantage in a bankruptcy.

Severe penalties

Bankruptcy fraud is a serious criminal offense. Those that engage in this kind of white-collar crime abuse a system that was designed to help individuals or companies to escape from overwhelming debt. Committing debt restructuring fraud violates Section 18 of the U.S. Code, and it is punishable by up to five years in a federal prison and a fine of up to $250,000.

Secured debts

About 10% of personal or business bankruptcies have an element of fraud, and concealing assets is the most common white-collar crime associated with debt relief. This is sometimes done by renegotiating loans secured by assets that a bankruptcy filer would like to keep. If these loans are reduced or eliminated, the chances of retaining the assets that serve as their collateral are greatly improved. Individuals or businesses that engage in debt restructuring fraud commit a federal crime, and they can face harsh penalties if they are prosecuted.