There are several “flavors” of bankruptcy, commonly known by their chapter number in federal code. A brief overview of the more common ones is as follows:
- Chapter 7 is for both businesses and consumers. It involves liquidation of assets in order to repay creditors. After the assets have been sold, regardless of whether the debt has been fully settled, the debtor receives a discharge which clears them of all existing debts to those creditors.
- Chapter 11 is most commonly filed by businesses. It allows them to reorganize their debt into a structured payment schedule to the creditors. This type of bankruptcy allows the debtor to continue to operate.
- Chapter 13 is the cousin of Chapter 11. It’s usually filed by individuals and allows them to repay their debts to the creditors over a course of several years. This is only available to individuals who have less than a certain amount of debt and who have a steady income to support the repayment plan.
So why does all of this matter?
A common type of fraud is to hide assets from bankruptcy court so that they aren’t seized and liquidated as part of the bankruptcy proceedings. In some cases, people will transfer the assets to a friend or family member prior to filing for bankruptcy. In other cases, they’ll attempt to under-value their assets. And sometimes people will create false debts to friends or family members which can be repaid after the process is complete.
All these actions are illegal and constitute fraud. The penalties can be very harsh. If you’re an investigator or a trustee charged with investigating potential asset fraud, there are several tools at your disposal. Beyond the usual forensic accounting, you may choose to leverage a database asset search. An asset search will uncover property records, vehicle registrations, business ownership records, that may have been previously undisclosed. Identifying these assets can be incredibly important in finding and preventing fraud.
If your business helps investigate hidden assets, whether it’s for bankruptcy proceedings, divorce court, or other kinds of fraud, consider using a comprehensive database search like USInfoSearch. Our sales staff is standing by to help!
