Fraud

• Intentionally failing to disclose a vacation property is fraud.Photos.com/Photos.com/Getty Images
  
  The trustee may consider any intentional attempt to mislead the bankruptcy court fraud. Examples include misstating income, concealing assets, making false statements and identity theft. One type of fraud, called a "credit card 'bust out'," involves applying for a credit card, maxing it out without ever intending to pay it back and then filing for bankruptcy. This sometimes involves falsifying information on credit applications to meet the creditor's qualifications. According to the Justice Department, bankruptcy fraud often is associated with other types of fraud, including credit card, tax, wire, mail, real estate and securities fraud.
  
  

Trustees

• U.S. trustees examine bankruptcy filings.John Foxx/Stockbyte/Getty Images
  
  The bankruptcy court assigns trustees when the debtor files for bankruptcy. One of the trustee's duties includes monitoring the debtors case for fraud. The trustee acts under the U.S. trustee's supervision. The trustee reports suspected fraud to the U.S. trustee. The U.S. trustee acts on behalf of the U.S. Department of Justice to, among other things, protect the bankruptcy system from fraud. After investigating and identifying fraud, the U.S. trustee may seek civil or criminal penalties ranging from dismissing the bankruptcy case to prison.
  
  

Criminal Penalties

• Defrauding the bankruptcy court can land a person in handcuffs.PhotoObjects.net/PhotoObjects.net/Getty Images
  
  When the U.S. trustee discovers fraud, she may refer the case to law enforcement or the U.S. attorney for prosecution. U.S. attorneys are federal law enforcement officers; they handle criminal and civil prosecutions on the federal level. 18 U.S.C. 152 and 157 make bankruptcy fraud a federal crime. Prosecutors may seek fines, up to five years imprisonment or both if investigators suspect debtors of fraud.
  
  

Civil Penalties

• Civil penalties for bankruptcy fraud can be thousands of dollars.Thinkstock/Comstock/Getty Images
  
  The U.S. trustee may seek civil remedies for bankruptcy fraud. One remedy may involve revoking a debtor's discharge. A trustee may revoke the debtor's discharge months after the debtor's case closes if the trustee uncovers fraudulent conduct. If the debtor's case is still open when the trustee discovers the fraud, she may have the court deny the discharge. Civil remedies can also include damages. If the debtor's fraud caused someone to incur a financial loss, the debtor may have to, at minimum, reimburse the victim. These damages may also include reimbursement of attorney's fees.