Many people and businesses in Tennessee consider bankruptcy as a last resort when they are drowning in debt. Though it damages your credit score for a few years, it gives you the opportunity to clear your debts and start a new or reorganize your business. However, the appeal of eliminating debts often tempts people to misuse bankruptcy laws. Here’s how.
1. Concealing Assets
Bankruptcy works by liquidating your assets and paying off as much debt you have as possible. The court takes inventory of everything you own, lump it together as a bankruptcy estate, and then uses it to pay your creditors. If you have an asset that’s dear to you, like a family heirloom or jewelry, you can be tempted to try and hide it to prevent the court from auctioning it to pay your creditors.
2. Misleading financial records
Some people are not honest about their income when filing for bankruptcy in Tennessee. For example, someone can fail to disclose money they make from their freelance work, or a business can produce misleading payroll records or remove some key financial documents when filing for bankruptcy. Other ways people try to mislead the court include artificially inflating liabilities or underreporting assets.
3. Preferential payment to creditors
Let’s say a close friend or family member lends you some money. You may favor them when clearing your debt by paying them immediately before filing for bankruptcy with the money you have or within a year of filing. You may not know this, but the law considers this fraud. It is illegal to favor a creditor over another in Tennessee.
4. Petition mills
If you live in a rental property and find it difficult to make rent, some agencies may approach you, claiming that they can help you avoid eviction. This agency will take your information and file for bankruptcy under your name, dragging it for months while charging outlandish fees. Before you realize it, they will have drained your bank account, ruined your credit score, and eventually, you will get evicted.
Partaking in any kind of bankruptcy fraud is a federal crime. If caught (which is often the case), you will serve five years in federal prison, pay $250,000 in fines, and still end up clearing your debt. Also, the court will not discharge the fine when your bankruptcy case is over.