What can prevent Chapter 7 filers from doing this? 13 Answers as of April 16, 2014

In the case of a Chapter 7 where there is a sizeable non-zero net estate, what is to prevent the filer from essentially recapturing a big chunk of the liquidated (non-wildcard or other exempted) assets by using insiders who artificially inflate their debts outstanding to the debtor before the petition date? Is this prevented by requiring accounting on the parts of the creditors? Or is there some parallel to the preferential transfer rule that would prevent such a crowding out of legitimate creditors from the pro rata pool?

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Stephens Gourley & Bywater | David A. Stephens
An interested party and the trustee have the right to object to any claim that does not appear to be legitimate. The claimant would then have to prove the value of their claim.
Answer Applies to: Nevada
Replied: 4/16/2014
Hicks, Massey & Gardner, LLP
Hicks, Massey & Gardner, LLP | Robert M. Gardner, Jr.
In some cases, you could bring this issue to the trustee to determine the legitimacy of the insider debts. If the trustee does not act, you may be able to object to dischargeability on the basis that the schedules are incorrect, depose the debtor, send discovery to the insider creditors, etc. To do this correctly, you need an attorney asap to help you do this correctly and within the time restrictions for doing so.
Answer Applies to: Georgia
Replied: 4/16/2014
Eranthe Law Firm
Eranthe Law Firm | Cate Eranthe
Creditor must file a Proof of Claim with documentation of the debt. It would be pretty obvious if the creditors were all of mostly all insiders.
Answer Applies to: California
Replied: 4/15/2014
Portland Bankruptcy Law Group
Portland Bankruptcy Law Group | Christopher J. Kane
When a creditor files a proof of claim, they are required to attach documentation verifying the validity of the claim and the dollar amount owed. Any party in interest, including other creditors, can file an Objection to the claim and force the creditor filing the claim to prove the validity of that claim. And the preferential transfer rule would not apply since the transfers would be after the filing of the bankruptcy and would not be voluntary transfers from the debtor to the insider.
Answer Applies to: Oregon
Replied: 4/15/2014
Tokarska Law Center
Tokarska Law Center | Kathryn U. Tokarska
Any money owed to debtor is an asset of the debtor's and belongs on schedule B. A debtor is required to provide proof of any secured debt obligations (mortgage statement, vehicle loan statement along with vehicle registration, etc). Debt acquired shortly before filing the bankruptcy will be especially scrutinized. If a debtor refinances or takes out an equity line of credit against their property the question from Trustee will be where did the money received from the loan go to?
Answer Applies to: California
Replied: 4/15/2014
    Fluhr & Moore, LLC | Steven S. Fluhr
    If what you say can be proved, then the fraud committed will be dealt with harshly by the bankruptcy courts. Some may even go to jail for committing bankruptcy fraud which is a separate criminal offense punishable by up to 5 years in jail and a fine of up to $250,000.
    Answer Applies to: Missouri
    Replied: 4/15/2014
    Musilli Brennan Associates PLLC
    Musilli Brennan Associates PLLC | John F Brennan
    What is preventing such occurrences is the fact that such practices would be deemed fraudulent, cause a denial of discharge and potential criminal liability. If you believe you are being cheated, hire an attorney. If you are thinking about "pushing the envelope", don't even think it.
    Answer Applies to: Michigan
    Replied: 4/15/2014
    A Fresh Start
    A Fresh Start | Dorothy G Bunce
    The office of the United States Trustee is a division of the US Justice Department, and they have the obligation to investigate allegations of Debtor and Creditor fraud.
    Answer Applies to: Nevada
    Replied: 4/15/2014
    Law Office of Shirly L. Horn | Shirley L. Horn
    You could object to the proof of claim.
    Answer Applies to: Michigan
    Replied: 4/15/2014
    Janet A. Lawson Bankruptcy Attorney
    Janet A. Lawson Bankruptcy Attorney | Janet Lawson
    If you think there is any fraud going on you need to tell the the trustee ASAP. You only have 60 days from the first 341(a) hearing to file a complaint to object to the discharge. You should see a lawyer about that.
    Answer Applies to: California
    Replied: 4/15/2014
    Danville Law Group | Scott Jordan
    What you describe is fraud and punishable. Creditor's would be foolish to commit such a fraud on the court because the fraud is easily discoverable. Also, creditor's are required to provide proof of the debt. If you believe creditor's are committing a fraud, you can alert the trustee.
    Answer Applies to: California
    Replied: 4/15/2014
    Law Offices of Eric W. I. Anglin
    Law Offices of Eric W. I. Anglin | Eric W. I. Anglin
    It is fraud and inside creditors would likely join the debtor as criminal defendants. Conspiracy to commit bankruptcy fraud is a serious crime.
    Answer Applies to: Indiana
    Replied: 4/15/2014
    HARVEY S. MORRISON, ATTONEY AT LAW
    HARVEY S. MORRISON, ATTONEY AT LAW | HARVEY S. MORRISON
    Much depends upon the case trustee, who is responsible for administration of the estate. If the trustee is street-wise, he/she would possibly recognize bogus transactions. If there are to be dividends, the trustee can object to the claims filed and require the creditors to prove their claims.
    Answer Applies to: Ohio
    Replied: 4/15/2014
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