Bankruptcy Filings Review A Necessary Step to a Thorough Claims Investigation

The reports of a down-turn in the U.S. economy results in an increase in bankruptcy filings and the filing of fraudulent insurance claims. The bankruptcy stops creditors from harassing the Petitioner and insurance fraud gives him or her the ability to quickly obtain funds with little risk.

Although reports indicate that the US Trustee has increased its reports of fraud to prosecutors, the number of arrests and prosecutions are minimal with 925 referrals for prosecution after a random audit over 1,074 fraudulent reports among 3,582 random audits. The amount of bankruptcy fraud must, therefore, be enormous. This fact is important to insurers dealing with claims of losses to real and personal property where the insured has filed a Petition for Bankruptcy within six years of the loss.

Bankruptcy petitions, like insurance proofs of loss, are submitted under penalty of perjury. It is to the benefit of the bankrupt to reduce the value of his or her property to avoid it being taken by creditors. The insured who is dishonest, on the other hand, finds it to his or her benefit to present the largest possible claim. The prudent claims person will always ask an insured with a loss whether or not the insured has filed bankruptcy in the past. If the answer is "yes" the insurance claims person should obtain, either from the insured, or the bankruptcy court, copies of all filings in the bankruptcy court including the petition and the schedules attached. The statements of values must then be compared with the items claimed stolen or destroyed in a fire.

In one example where a criminal bankruptcy fraud prosecution grew from an insurance claim the insured reported that his home was burglarized and his wife's jewelry, valued at over $50,000, was stolen. At Examination Under Oath he testified that the jewelry had been wedding gifts more than 30 years before and had been in the insured's continuous possession. Unfortunately for the insured he filed a sworn petition with the bankruptcy court three years before the reported burglary, that he owned only $300 worth of jewelry. When asked the insured claimed he lied to the bankruptcy court to keep his creditors from gaining possession of his jewelry and his airplane (which he also failed to disclose). The claim, for this and other reasons was denied for fraud and a report was made, as required by law, to the U.S. Attorney. Bankruptcy fraud was charged and the insured convicted after a six hour trial.

Almost every court will agree that a sworn statement made in a federal proceeding, like bankruptcy, are reliable documents. If a person testifies to a bankruptcy judge that he only has $300 in jewelry and tells his insurer he has purchased no jewelry since the bankruptcy, the insurer can rely on that evidence to conclude that a subsequent theft did not include jewelry valued at more than $300.00 and any claim made in excess of that amount is fraudulent.