Debt Restructuring Fraud

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DEFINITION of 'Debt Restructuring Fraud'

An illegal technique where an individual or corporation hides or transfers assets before filing for bankruptcy. Debt restructuring allows the fraudster to reduce or even erase the debts and then reclaim the assets. Debt restructuring fraud is a clear abuse of the intent behind bankruptcy laws.

INVESTOPEDIA EXPLAINS 'Debt Restructuring Fraud'

The guiding principle of bankruptcy is that the creditors and debtors can find a compromise that favors neither party, but satisfies both. By knowingly concealing or misstating assets, the debtor is abusing the process to escape financial liabilities while holding onto the wealth that those liabilities - and thus the creditors - helped create.

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