When the economy faces serious downturn, businesses often suffer serious consequences and may find themselves in a dire financial situation. When a business no longer proves profitable, the owners may decide to file for bankruptcy to relieve the mounting financial burdens that may be placed on the business. Although most business owners file for bankruptcy to protect their business or dissolve a corporation that is no longer profitable, some individuals may engage in fraudulent actions to gain financial advantage.
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Commercial bankruptcy fraud is a serious crime that negatively affects the average citizen taxpayer. Fraud costs the taxpayer valuable dollars that could have been better used elsewhere. If you have information regarding a business that is committing fraud, it is important to contact watchdog groups and hot lines with the information.
Common types of commercial fraud include:
o Concealing assets
o Making false statements regarding the financial status of the company
o Filing bankruptcy in more than one state
o Intentionally omitting information on the application
o Setting up a "bust-out" company designed to fail from the start
o Ordering large amounts of merchandise and then immediately filing for bankruptcy
o Obtaining large sums of money on credit and intentionally filing for bankruptcy
Commercial bankruptcy fraud may involve the short-term establishment of a business for the purpose of ordering goods and obtaining financial backing only to declare bankruptcy after receiving goods or spending the money. This type of intentional business "failure" is known as a "bust-out". Bust outs are very harmful to other businesses, making goods and credit harder to come by. Creditors and distributors may be wary of lending to legitimate businesses after dealing with a fraudulent borrower.
Fraud investigators look for certain signs that a business may be operating in a fraudulent manner. New businesses, companies with good credit that are acquired by an unknown entity, suspicious financial paperwork, and other red flags often alert investigators that a bankruptcy petition may involve suspect behavior.
Many legitimate businesses turn to bankruptcy to help reorganize their company and help repay or forgive mounting debts. When applied in the correct manner, bankruptcy may help a struggling business return to profitability within a few short years. Unfortunately, fraudulent actions may make the application process difficult for other businesses, but the majority of claims are legitimate requests for assistance.
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