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Wednesday, December 16, 2009

Good Times for Deadbeats! Bankruptcy Fraud Cases Down, Fraud Likely Up

There has been lots of anecdotal evidence since mid-2007 pointing to a serious upswing in bankruptcy abuse and other forms of "deadbeat abuse."  The official statistics are now coming out showing a drop in bankruptcy fraud cases filed; see this Bloomberg News story here.
Bankruptcy fraud is not an innocent crime.   I view it as similar to stealing.   A debtor who does not pay his bills is in essence stealing from the creditor by not paying for the goods or services received.   Just think about shoplifting.   Then, to make matters much worse, a person who fraudulently files for bankruptcy tries to get court approval to stiff the creditors even more.
Here's a brief explanation.   A bankrupt person files bankruptcy in order to get protection from creditors while a reorganization or discharge is worked out.   A filer must list his or her assets, liabilities (debts), expenses and income.    The bankruptcy court usually approves a "plan" which  discharges most unpaid debts with secured creditors generally getting a good chunk of their claim (out of listed assets) and unsecured creditors getting the rest, which could be substantial, or pennies on the dollar, or absolutely nothing.   Bankruptcy fraud often involves hiding or falsifying these records to deceive both the bankruptcy judge and the court-appointed trustee, and the creditors' committee.  Simply put, it is a way to further deceive and injure creditors.   
Think about the foregoing the next time you assume that all bankrupt parties are victims.   Many are the victims of purely uncontrollable or unavoidable circumstances like major, severe medical bills -- don't get me wrong -- but there are many others for which the bankruptcy game is just another scam.   Just because we're in a major recession doesn't mean that bankruptcy fraud and abuse should become socially acceptable. 
As a friend of mine said recently, quoting a former United States Senator, "bad money chases out good money."   We need more investigations and prosecutions of this abuse.   People who play by the rules and get victimized must have their rights depend on the rule of law, which must be upheld.   When people who play by the rules get ignored, they will stop spending money, investing, extending credit or trusting others; all of these reactions hurt the economy.   When these good people get chased out, they are replaced by the far less desirable. 

Eric Dixon is a New York lawyer and strategic analyst who engages in crisis management and other matters. Mr. Dixon cautions readers that this article is not legal advice. Mr. Dixon may be contacted for further comment through, or at 917-696-2442.


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