Your small business is making an oath to follow the rules and the law when you file for a Chapter 7 or Chapter 13 bankruptcy, so that your trustee will receive payment for the money you owe.
When you break that oath at any stage of the bankruptcy filing process, you’re committing fraud. This then puts your bankruptcy application at risk, and you incur significant penalties.
In simple terms, fraud can surely make a bad bankruptcy experience a hundred times worse.
Understanding Bankruptcy Law to Avoid Mistakes
It’s easy to make mistakes when you don’t know and understand the basics of bankruptcy law. Remember that there are limitations on what your business can and cannot do months before you file. For instance, you can’t pay one creditor in March and file for bankruptcy a month after to deal with the others. Any payment you make within three months of filing can get you in trouble.
Bankruptcy law also states that it’s already fraud if you accept money or goods under false pretenses. For instance, you don’t tell your lender everything truthfully when your business applies for loans, or you submit a “creative” tax return that misinterprets your earnings.
The Role of a Lawyer
If your business commits fraud, the court will likely dismiss your bankruptcy petition, leaving you with so much debt with no way to eliminate it or pay for it — or worse, leaving you to face jail time.
This is exactly why many experts recommend hiring a bankruptcy lawyer, says christensenyounglaw.com. These lawyers can look at your books for the months leading up to your bankruptcy, and tell you if these will stand up to inspection.
Acting in “Good Faith”
Bankruptcy lawyers urge those filing for bankruptcy to always act in “good faith”. This means you should deal honestly with the bankruptcy court and your creditors. All your dealings and transactions before AND after you file must be honest, straightforward, and responsible.
Filing for a bankruptcy is bad enough — don’t make it worse. If you think you’re unconsciously (or consciously) committing fraud, get the help of an attorney.