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Bankruptcy Fraud FAQ

What is bankruptcy fraud?

Bankruptcy fraud is when a debtor files for bankruptcy with the intent of hiding assets or concealing funds which could otherwise be used to repay creditors. While uncommon, the FBI actively investigates bankruptcy fraud and does prosecute those who engage in bankruptcy fraud.

Can I transfer or convert some of my assets to protect them from creditors?

That depends. The bankruptcy code allows for potential debtors to plan for bankruptcy by making contributions towards retirement accounts or contributing funds towards household expenses or mortgage payments. The bankruptcy code, however, does not allow for a debtor to transfer bank account funds to another individual or make large payments to individuals just prior to filing.

Can I sell my home prior to filing bankruptcy and keep the proceeds?

Yes. However, in order to protect the left over proceeds you must reinvest the funds in a new home. This is known as the homestead exemption and California law allows you to protect up to $100,000 of proceeds so long as those proceeds are applied to another homestead within six months of the sale.

What happens if a creditor challenges the discharge of a certain debt?If a creditor objects to the listing of a certain debt and believes it was incurred under fraudulent purposes, it can file a motion with the court and have a hearing on whether the debt should be discharged. The creditor must prove that at the time the loan or money was borrowed or spent that the debtor intended to never repay the loan.

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