One way bankruptcy helps people in dire financial straits is by discharging certain debts. This means you are not obligated to pay them off. However, judges will not allow the discharge of debt if they suspect the debts are fraudulent or that the debtor is trying to abuse the bankruptcy system.
CNBC explains some examples of debts that may involve fraud and could cause a judge to deny a discharge.
Dishonest acquisition of loans
When getting a loan, you generally have to supply personal financial information to prove you can pay off the loan. In the event a court finds you have entered misleading or completely false information on an application, the debt resulting from the loan will likely not qualify for a discharge.
Excessive credit card charges
Bankruptcy courts do not want people to rack up expenses with the intent of discharging it in bankruptcy. According to the National Consumer Law Center, the law will consider credit card expenditures of over $800 made 90 days before a bankruptcy filing to be fraud, although this does not count spending on essentials.
Excessive cash advances may also qualify as fraud. It depends if you receive $1,100 or more from one creditor 70 days prior to filing for bankruptcy.
Even if a judge grants a discharge, allegations of fraud could still surface later and cause the judge to revoke the discharge. As the U.S. Courts site explains, a revocation usually has to happen within a year of the discharge or prior to the closing of the bankruptcy, depending on the case.
The possibility of losing out on a discharge at any stage of bankruptcy makes it important to present all information accurately and comply with judicial requirements so the bankruptcy system can help restore you to solvency.