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Contesting Bankruptcy Fraud from Holiday ShoppersThe average U.S. consumer takes on more than $1,000 in debt each December – much of it related to holiday shopping and put on credit cards. When it comes time to repay those debts, some consumers struggle to keep up with minimum payments and eventually default on their debts. Debtors who qualify for bankruptcy can put unsecured creditors such as credit card companies in a difficult position because the debtor may be able to discharge all or part of their credit card debt at the end of the bankruptcy. Creditors can stop or limit the bankruptcy process if they can show that the debtor is trying to commit fraud.

Amassing Debt

One way that bankruptcy fraud can occur is when the filer takes on debt that they never intended to repay. For instance, a debtor who intends to file for bankruptcy may use a credit card to purchase gifts for the holidays because they believe that they can discharge the debt later. The credit card company may suspect the debtor’s intention and can file a claim of fraud with the bankruptcy court. If the claim is proven, the court may order that the fraudulent debt is ineligible for discharge or dismiss the case.

Presumption of Fraud

It can be difficult for a creditor to prove that the debtor is committing bankruptcy fraud by including debts that they did not intend to repay. Unless the debtor confesses their intentions, the creditor will rely on circumstantial evidence from which the court can reasonably conclude that the debtor intended to commit fraud. For instance, there may be records of the debtor inquiring about bankruptcy or meeting with an attorney before taking on the debt. U.S. bankruptcy law presumes that some financial transactions by a bankruptcy filer are fraudulent and ineligible for discharge, including:

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Serial Bankruptcy Filers Held Accountable in CourtOne of the advantages that debtors gain by filing for bankruptcy is putting a stop on debt collection and property repossession efforts by creditors. By using bankruptcy, debtors often pay less than what they actually owe and discharge their remaining debts afterward. Some debtors abuse the process by being serial bankruptcy filers. Bankruptcy laws require filers to waiting a certain number of years before they can discharge their debt again. Serial filers try to continuously delay creditors’ debt collection actions by repeatedly filing for bankruptcy without ever completing a case. Debtors who attempt to defraud creditors through serial bankruptcy can face criminal charges.

Recent Example

In the case of United States v. Williams, the defendant was convicted on five counts of bankruptcy fraud for using repeated bankruptcy filings to prevent debt collection efforts by her condominium association. The defendant had fallen behind on payments to several creditors, including fees she owed to the condominium association. As part of the scheme to avoid debt collectors, the defendant would:

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