Bankruptcy Fraud & How To Report It

The Office of the Superintendent of Bankruptcy (OSB) is responsible for overseeing insolvencies across Canada and has a section on Bankruptcy Abuse and Fraud.

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One of the biggest reasons for the Canadian insolvency laws is to allow unfortunate individuals a chance for a new financial start, without being weighed down by prior debts.

RCMP Investigate Bankruptcy Fraud Toronto Ontario Canada

In some cases, however, people want to know how to protect their belongings from being seized when going bankrupt and sold to have the proceeds distributed to the creditors.

Some people consider if they could pay a family member instead of paying off a credit card bill before declaring bankruptcy.

Bankruptcy Fraud Examples – Offences Under the Bankruptcy and Insolvency Act

Most Canadian debtors who declare bankruptcy are honest but unfortunate debtors who are trapped in debt.

Unexpected situations can arise such as a job loss, divorce or illness that make insolvency proceeding a necessity to get a fresh financial start.

The insolvency process is administered by a Licensed Insolvency Trustee (LIT).

Unfortunately, there are also people who want to take advantage of the Canadian bankruptcy laws to purchase things they cannot afford or obtain credit that they shouldn’t have access to.

Planning to go bankrupt after racking up a large amount of debt is a crime and is known as bankruptcy fraud.

The fraud can come in different forms, although the intent is always the same – purchasing items with the intention of filing bankruptcy instead of paying off the debt or hiding assets from the Trustee.

Some of the most common fraud offences that occur under the Bankruptcy and Insolvency Act (BIA) and the Criminal code:

  • Living beyond your means;
  • Continuing to obtain more debt and credit when you are aware you will be unable to repay the debt;
  • Making large purchases on credit in the months before declaring bankruptcy;
  • Fraudulently disposing of property before filing bankruptcy;
  • Obtaining credit through false representations;
  • Lying to the Trustee about your assets, income or debts;
  • Refusing to answer the Trustee’s questions;
  • Making preference payments to family or friends.

How are the Fraud Offences Discovered?

When you go bankrupt there are several checks that are designed to spot an offence under the BIA.

When you meet with a Licensed Insolvency Trustee (the only debt relief expert who can file a bankruptcy under the BIA) they will ask you for sworn statements regarding your salary, monthly expenses and windfalls you have received or expect to receive.

Windfall payments could include lottery winnings or receiving a cash payment from a family member or friend.

You must provide your Trustee with documents to back up your statements about your debt and income.

If you have made a recent large payment on credit your Trustee might suspect fraud.

Creditors, banks, neighbors and family members can report any fraudulent behavior they expect.

Committing bankruptcy fraud is a serious offence and bankrupts who have committed fraud will be investigated by the RCMP and could face arrest and criminal charges.

OSB officials licenses and regulates the insolvency profession, ensures compliance and supervises the administration of insolvency cases.

Creditors Role in Detecting Abuse & Fraud

Creditors often play a critical role in reporting bankruptcy fraud in Canada.

Creditors can report insolvency fraud by:

Having knowledge of assets or transactions that the bankrupt failed to disclose.

The creditor may contact the Licensed Insolvency Trustee to report that the bankrupt failed to disclose important information; Having knowledge of preferential payments that the bankrupt has made.

For example, if a creditor is aware that the bankrupt made a payment to their family member that hurt the interests of the creditor (or any other creditor) they must report this to the Trustee, who will investigate;

The creditor can oppose the bankrupt’s discharge, along with the reasons for opposing the discharge.

If the creditor suspects misconduct or fraud on the part of the bankrupt, they can oppose their discharge from bankruptcy, which will result in an investigation by the insolvency court.

If a creditor in a bankruptcy case suspects any form of fraud or misconduct, they will be required to report the suspected fraud to the Trustee or the OSB.

Disclose Everything to Your Trustee

Bankruptcy is intended to give you a fresh start. In exchange you must report your income, debt and assets to your Trustee.

If you fail to disclose information to your Trustee, it will not only complicate and extend your bankruptcy case, it could also result in you being charged with a fraud offence.

If you fail to disclose assets, for example, your creditors could object to your discharge and report a bankruptcy fraud offence.

If your omission to your Trustee is considered fraudulent you could face serious criminal charges.

Penalties for failing to disclose information to your Trustee could be imposed by the BIA as well as the Criminal Code.

Filing can be stressful and honest mistakes do happen.

If you have honestly failed to disclose important information to your Trustee, contact your Trustee immediately and they will help you proceed in correcting the error.

Where Can I Report Insolvency Fraud?

If you suspect that someone is committing bankruptcy fraud you should report this information to the OSB (Office of the Superintendent of Bankruptcy).

You can reach the OSB at 1-877-376-9902.

The OSB will record your complaint and a bankruptcy analyst will review your complaint. The analyst will conduct an investigation and if possible will follow up with the relevant parties.

What Happens If I am Found Guilty of Fraud?

Bankruptcy fraud is a serious offence and the penalties for committing fraud will be determined on a case by case basis.

Many people who attempt to commit bankruptcy fraud believe their fraud will not be discovered.

However, the OSB and Trustees are trained to spot fraud and are very good at doing so.

If you are investigated for bankruptcy fraud you will likely have to pay any debts or purchases that arose through your fraud. You could also be convicted in which case you will face large fines, as well as possible jail time.

If you are convicted of a fraud offence, declaring bankruptcy or a consumer proposal in the future will likely not be possible.

Your current case will also be reviewed and you will find it very challenging to receive your automatic bankruptcy discharge.

Need Help Reviewing Your Financial Situation?
Contact a Licensed Trustee for a Free Debt Relief Evaluation

Call 877-879-4770


Information on Consumer Proposals

Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
How to Amend a Consumer Proposal
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
Consumer Proposal Eligibility
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?

Canadian Bankruptcies

How to File for Bankruptcy
What is Bankruptcy?
Bankruptcy FAQs
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?

Need a Licensed Insolvency Trustee?

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