Often when people are ready to take out bankruptcy they will consider, just for a moment, racking up extra debts beforehand.  There are a huge number of reasons to avoid even considering this.

1.  The trustee will look to see if the debtor trying to defraud creditors.  Right after filing for bankruptcy, the debtors case will be assigned to a trustee, who will preside over the hearing.  The trustee's has essentially 2 jobs, that a debtor has not defrauded their creditors, and how to liquidate any non exempt assets that the debtor may have.  The trustee, and his office staff, typically audit a bankruptcy filing very aggressively, assuring each case is legitimate.  The trustee will be aggressive, as this will positively affect his compensation package for presiding over the case.  They will have several weeks to look over a case, so by the time the debtor show up at the hearing, the trustee will be keenly aware of a debtors situation, and will have a list of questions for the debtor.  If, after questioning, any extra research is then needed by the trustee, he will postpone any decisions for a later hearing, usually several more weeks down the road.  The trustee will take as much time and will have as many meetings as needed to determine that he can proceed with the bankruptcy.

 

2.  The defrauded creditor can show up at the bankruptcy hearing, and plead to have the debtor denied of their bankruptcy.  The bankruptcy hearing itself is actually called the meeting of creditors, also known as a 341 meeting.  During this meeting, any creditors who would like to have the debtors bankruptcy denied can show up and dispute the bankruptcy.  The creditor will bring all pertinent financial information, and their lawyer, and dispute why the bankruptcy case should be thrown out.  If the creditor can accomplish this, then they will retain legal rights to go after all monies owed to them.

 

3.  Any indication of fraud will force the trustee to deny the debtor a bankruptcy discharge.  During this time, the temporary stay that was placed on the creditors will be removed.  It's then open season on the debtor, including wage garnishments, leans on property, harassing phone calls, repossessions and everything else that will devastate a debtors finances, and his living situation.  Also the trustee is not out of the picture either.  The trustee can then chose to liquidate the assets of the estate, both exempt and non-exempt items. 

 

4.  The trustee may inflict what is referred to as "the death penalty".  In this case, the trustee PERMANENTLY blocks a debtors discharge.  Even refilling for bankruptcy can be denied.

 

5.  Making false statements or concealing property can lead to a fine up to $500,000, or imprisonment to 5 years, or both.  In order to take out a debt just before bankruptcy, one can assume that false statements would have to be made by the debtor in an attempt to cover his tracks. 

 

6.  Willfully defrauding creditors during bankruptcy is a felony.  Bankruptcy's are all presided over in a federal courthouse.  The trustee is a part of the US Trustee Program from the Department of Justice.  While trustees are actually considered lawyers and not judges, they are nonetheless a force to not be reckoned.  They also have the ability to forward a case to a federal judge, which is never good.

 

The best advice, the only goal for anyone taking out bankruptcy is to be discharged, and relieved of debt.  Deliberately defrauding creditors, considering all of the risks involved, is an extremely bad idea.

 

Sources:

 

http://caselaw.lp.findlaw.com/scripts/ts_search.pl?title=11&sec=727

http://www.wellsofjustice.com/compensation.htm

 

 

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