PENALTY FOR BANKRUPTCY FRAUD When you file bankruptcy, the process requires that you lay all your cards on the table. You have to be honest about what you have, and what you owe.
The conditions of bankruptcy fraud are outlined in Section 523 of the Bankruptcy Code, which explains that debts cannot be discharged under false pretenses, with false representation, or due to fraud.
The filer’s assets are liquidated in order to pay off as much of their debt as possible. In addition to losing the ability to file bankruptcy, there may also be legal action taken against the filer that may include fines up to $250,000 and five years in a federal prison.
This means the attempted bankruptcy will be thrown out of court, and the filer will retain liability for all debts.
The bankruptcy fraud laws are there to keep people from intentionally cheating their creditors, so honest mistakes are unlikely to have serious consequences, so long as you own up to your mistake.
The mistakes may still be costly. The court will want an explanation and your bankruptcy filing may be delayed, which can still be costly.
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