The creditor lobby would have you believe that people who file bankruptcy are the ones committing fraud.
They sold the bankruptcy law reforms as a way to stop the rampant fraud going on, people filing bankruptcy to skip out on their debts, debts which they could afford to pay.
That was the company line.
Debt incurred by fraud has always been an exception to discharge in bankruptcy cases.
Debtors have always had the duty to truthfully fill out the forms and answer questions about their finances, failing to do so results in denial of discharge as to all debts for fraud.
For decades, bankruptcy courts have had the power to review the income and expenses of people who file bankruptcy, and dismiss cases for substantial abuse when the court found that the debtors could pay a significant portion of their debts.
So the system had many checks on debtors to insure fraud was committed neither on the court, nor on the creditors.
But what about the papers filed by creditors?
In order to be paid by trustees, whether in Chapter 7 or Chapter 13, creditors must file a written proof of claim, under penalty of perjury.
Documents that support the claim must be attached, and everything is to be filed with the clerk of the court, copies to the trustee and the debtor.
For years, I have seen false claims filed by mortgage companies, which would result in them being overpaid in
Chapter 13 cases, at the expense of other creditors.
In Chapter 13, the debtor pays so much per month, whatever is left of her income after paying living expenses.
If the mortgage creditor takes more, there is less for the unsecured creditors, but the debtor rarely has to pay more.
The United States Trustee office, part of the Department of Justice, was created to push Chapter 11 cases through the system, and monitor budgets, the monthly income and living expenses, of debtors in Chapter 7.
In new legislation proposed in the Senate, the U. S. Trustee would be given new authority to investigate and chase creditors committing fraud in the bankruptcy court.
The truth is, I see a lot more fraud committed by them than by debtors.
The Truth About Bankruptcy Fraud