Scam artists target anyone they feel they can cheat, including bankruptcy petitioners. While it may seem bankruptcy petitioners would be low on the list for fraudsters, they make enticing targets for many scam operations, particularly phone-, identity theft-, and foreclosure fraud rings.

Bankruptcy petitioners should know their attorneys will never ask them for money or personal information over the phone. Also, many foreclosure scam operations offer assistance negotiating with lenders and then request you send their mortgage payments to them. They then abscond with your funds.

Bankruptcy scams differ from bankruptcy fraud. Bankruptcy fraud occurs when petitioners claim false information in their filings.

Phone Scams

Because bankruptcy petitions create a public record, scammers can identify people in bankruptcy or with a recent bankruptcy. Some use this information to conduct sophisticated telephone scams to trick them into wiring money or providing information for identity theft.

For instance, in 2015, phone scammers targeted bankruptcy filers in the Northeastern United States. They used personal information from bankruptcy petitions to pretend they were bankruptcy attorneys. They claimed they needed the targets to wire money immediately to satisfy a debt.

In some cases, the scammers pressure the victims by claiming that the target faces imminent arrest if the debt remains unsatisfied. Under no situation would a bankruptcy filer face arrest over unpaid debts.

If you receive a call demanding money and threatening you in any way if you refuse to pay, it is not from a bankruptcy attorney or any attorney operating inside the law. It is a scam. Hang up immediately and report the incident.

According to the National Association of Consumer Bankruptcy Attorneys: “Under no circumstances would a bankruptcy attorney or staff member telephone a client and ask for a wire transfer immediately to satisfy a debt. Nor would the bankruptcy attorney and staff ever threaten arrest if a debt isn’t paid.”

In one telephone scam, fraudsters contacted bankruptcy petitioners in Vermont and Virginia while using software to “spoof” Caller ID. The spoofing technique makes it appear to the receiver that the call comes from their bankruptcy law firm. Often, the fraudsters would time calls for when firms are closed, making it difficult for the targets to verify the request.

The scammers relied on creating a sense of urgency. Knowing they must collect the money before the target contacts their firm, they demanded payment immediately and warned of dire consequences for noncompliance. When targets asked questions or sought to verify their identity, the callers often grew irate and issued threats, such as that the case will be dismissed, the debtors will lose property, or the police will arrest them for nonpayment. None of these things occur in a bankruptcy case.

No bankruptcy attorney would pressure a client to wire money. The purpose of bankruptcy is to eliminate debts, so wiring money makes no sense.

In Chapter 7, these claims are absurd. Bankruptcy wipes debts clean, and the attorney would never collect any debts. In the context of Chapter 13, filers pay one monthly bill through the court. A firm would never contact them for an additional payment.

Telephone scammers may also try to elicit personal information from filers that facilitate identity theft. Fraudsters find information about bankruptcy filers from public records, but these records provide insufficient information for identity theft. Thieves must obtain Social Security numbers and other data unavailable in public databases.

Thus, some fraudsters pose as bankruptcy attorneys or law firm staffers and try to trick targets into revealing this information. They may claim they need the victim’s Social Security number immediately for some urgent filing. Often, when targets are reluctant, they warn of some dire consequence, such as the case being dismissed. They may make threats.

It’s important to remember that no bankruptcy law firm contacts its clients seeking this information over the phone. All personal data needed for the filing is handled in person. If anyone contacts you claiming to be from a bankruptcy firm and demands private information, hang up immediately and report the incident.

 

Bankruptcy Foreclosure Scams

Bankruptcy foreclosure scams, or mortgage rescue scams, target households carrying delinquent mortgages. They offer to help victims save their homes through a special program. Often, they try to create a sense of urgency, telling targets that they must act now or lose their house.

Many of these fraudsters advertise on the Internet and in local publications. Some distribute flyers around neighborhoods they are familiar with. For instance, they may target members of a particular ethnic- or religious group by posting signs or disseminating flyers in neighborhoods where they predominate.

These scammers promise their victims to help in preventing foreclosure. Often, they claim they can solve the problem by negotiating a refinance deal with the mortgage lender. Then, they request you pay your mortgage directly to them. Also, they may try to convince you to place your property deed with them!

These scammers prey upon their victims’ fears of losing their homes. To get your money, they are willing to promise you the moon. Since their only intention is to relieve you of your money, they can offer remedies that are too good to be true, and they are.

Once they have your payment and deed, the scammer disappears with your funds, leaving you even closer to losing your home. At this point, many scammers use the information they obtained from you to file bankruptcy in your name without your permission.

The bankruptcy filing automatically stops a home foreclosure temporarily. This makes it appear that they are helping you, and if you are unaware of their actions, they may induce you to give them even more money.

Eventually, the scam is revealed. Often, the individual discovers the fraudulent bankruptcy. Then the victim must go through the arduous process of unwinding the false bankruptcy and saving their home after the scammer has relieved them of thousands of dollars they desperately needed. As a result, many of these victims lose their houses.

Homeowners who suspect a mortgage relief scammer has targeted them should contact their local office of the United States Trustee. United States Trustees are Justice Department officials who supervise the bankruptcy system.

The Difference Between Bankruptcy Scams and Bankruptcy Fraud

Bankruptcy scams and bankruptcy fraud are two different crimes. In a bankruptcy scam, the criminal targets legitimate bankruptcy filers, often to defraud them of cash or obtain data for identity theft. Bankruptcy fraud refers to individuals who abuse the bankruptcy system to defraud their creditors, such as by hiding assets.

Fraud That Starts Before Bankruptcy

Bankruptcy fraud often begins before the filing of a petition. Some individuals use bankruptcy as a way of covering up misdeeds. Because bankruptcy is used to cover prior acts, the fraud begins before filing.

Courts are on the lookout for signals that a petitioner has filed for bankruptcy fraudulently. Some situations they watch for include the following:

• Obtaining credit under false pretenses, such as by misrepresenting income or assets on a loan application
• Falsifying financial documents used to support a mortgage or credit request, such as misrepresenting net worth
• Purchasing items on existing credit with no intention of repaying the debt
• Charging expensive luxury items or obtaining large cash advances shortly before filing for bankruptcy
• Passing bad checks intentionally
• Engaging in deceptive business practices

During the bankruptcy case, debtors must answer questions the bankruptcy trustee poses that help the court determine if any fraud exists. Additionally, creditors may object to the discharge of certain debts, alleging fraud. In those cases, the trustee works with the creditor to investigate the claim and determine if fraud occurred.

Fraud Committed During Bankruptcy

Fraud committed during bankruptcy often revolves around hiding assets. For example, bankruptcy petitioners may keep only a small amount of cash. Any other amounts must be turned over to the bankruptcy trustee to compensate the creditors. As a result, some individuals may feel the temptation to hide cash and tell the trustee they have declared all assets. This constitutes fraud.

Common examples of fraud committed during bankruptcy include the following:

• Failing to list an asset on the corresponding bankruptcy schedule to conceal it from creditors
• Concealing a property transfer that occurred before the bankruptcy, such as by transferring it into another’s name
• Providing false documents to the bankruptcy court or trustee
• Destroying or withholding documents
• knowingly making false statements in the bankruptcy paperwork or to the bankruptcy trustee
• Engaging someone to help hide property from the court

Bankruptcy Fraud Must Be Intentional

Bankruptcy fraud results from intentional acts, such as hiding assets from the bankruptcy trustee. Honest mistakes and accidental omissions do not contribute to fraud, though they may impact the ultimate resolution of the case.  For instance, forgetting to list a small asset is a common mistake that may not rise to the level of fraud. However, hoarding bars of gold in your home and claiming you are broke certainly does.

Bankruptcy scams continue their prevalence. In the modern age, it’s easy to obtain public records, which give con operations a list of targets. Petitioners should remember that law firms never request that money be urgently wired or personal information be revealed over the phone. If a caller pressures you to provide money or personal data, it may be a scam operation using spoofing software to appear as the law firm on the caller’s I.D.

Always verify identity before providing any funds or personal data.

Morgan & Morgan helps financially distressed clients obtain lasting financial security through bankruptcy. Our team fights for the rights of our clients to a productive future. If you think bankruptcy may be an option, contact Morgan & Morgan for a consultation.

 

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