What Is Debt Restructuring Fraud

Debt restructuring fraud is 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.

Debt restructuring is a financial method used by companies and individuals with outstanding debt to have the terms of their debt agreements modified in order to gain an advantage to aid in payback. It is often carried out by reducing interest rates on the loans and/or extending due dates for when the company’s liabilities are scheduled to be paid in order to improve the chances that the loans are paid back.

BREAKING DOWN Debt Restructuring Fraud

The guiding principle of bankruptcy is for the creditors and debtors to find a compromise that works for both sides. By knowingly concealing or misstating assets, the debtor is abusing the process (and its creditors) to escape financial liabilities while holding onto the wealth that those liabilities helped create.

If it is determined that a person or group knowingly intended to defraud creditors with their asset disclosures based on existing law, then the bankruptcy court may impose civil or criminal penalties on the involved parties.