Can Online Scams and Cybercrime Cause Bankruptcy

The digital age has transformed how we work, shop, and interact. However, it has also opened up new avenues for cybercrime and online scams, which can have immense financial consequences. From identity theft to bank fraud to voluntarily transferring your funds to an international location, these schemes can involve hefty financial losses. The question then is: can online scams and cybercrime cause Bankruptcy?  

The Growing Threat of Cybercrime

Cybercrime encompasses a range of activities, including online fraud, credit card fraud, cryptocurrency fraud, and identity theft. These crimes are often perpetrated through emails, malicious websites, or sophisticated AI technologies (e.g. deepfakes) designed to deceive individuals and businesses. Add in the constant attempts by telephone scammers, and you can begin to understand why so many people become victims of one type of fraud or another.

To fully show the gravity of the situation, financial scams are one of the leading reasons why people contact us at Chase & Associates to discuss a possible insolvency filing.

The role of identity theft

Closely related to cybercrime is identity theft. Identity theft occurs when a criminal gains unauthorized access to your personal information, such as a social insurance number (SIN), bank account details, or credit card information. The stolen data is then used to commit identity fraud—bad actors can open fraudulent credit accounts or apply for loans in your name.

Without identity theft protection, victims often face long-term financial consequences such as damage to their credit report, monetary losses, greater debt loads, and privacy breaches.

Credit card fraud and its impact

Credit card fraud is another common form of online crime. Criminals use stolen card information to make unauthorized purchases that leave the cardholder responsible for charges they did not make.

While many banks and credit card companies offer fraud protection, the dispute process can be time-consuming and stressful.

In the meantime, your credit score can drop and cause further financial complications.

Cryptocurrency fraud

A more recent type of cyber fraud relates to cryptocurrency. The usual sequence of events involves the classic promise that is “too good to be true.”

Individuals, often hoping to obtain a financial gain, are first required to forward funds to the scammer. Sadly, these funds often disappear with no recourse to the victim (many of whom borrowed the funds in the first place and now owe).

Deepfakes

The advent of deepfakes and AI has introduced new challenges in combating online scams. These technologies can impersonate individuals or generate false videos at a quality that is hard to distinguish between legitimate and fraudulent interactions.

How Online Scams Lead to Bankruptcy

The financial fallout from these scams can be severe, especially for those who lack sufficient savings or insurance. Here’s how cybercrime and other financial scams can trigger Bankruptcy:

1. Loss of savings: Scammers often target retirement funds, savings accounts, or other financial reserves. Stolen assets can leave you without a safety net for emergencies or daily expenses.
2. Debt accumulation: Scam victims may rely on credit or high-interest debt. This is particularly problematic when paired with a damaged credit score, as it becomes harder to secure affordable loans. Some people seek payday loans to survive, which leads to even worse financial conditions.
3. Unpaid bills and legal fees: The financial fallout after a scam often involves unpaid bills, legal fees, and other expenses that can spiral out of control.
4. Emotional toll: The stress of falling victim to online fraud can lead to poor decision-making that compounds any financial problems.

The Rise of Debt Relief Scams

In some cases, victims of cybercrime turn to debt consultants for help, only to fall prey to unregulated/unlicensed debt advisors who offer false promises of relief. These debt relief scams exploit vulnerable individuals with high fees for services that often don’t deliver relief. Victims are then left deeper in debt, with fewer resources to address their financial challenges.

Where can scam victims who are in financial trouble go? Licensed Insolvency Trustees (LITs). LITs are highly regulated and monitored by the Federal Government in part for the protection of the public.

Protecting Yourself Against Online Scams

You can defend against cybercrime by taking proactive cybersecurity measures that safeguard your finances. Here are some fraud protection best practices:

• Use strong passwords: Create complex passwords for all online accounts and update them often.
• Enable Multi-Factor Authentication (MFA): MFA will add an extra layer of security to your accounts.
• Install anti-virus software: Protect your devices from malware and other threats.
• Be cautious online: Avoid clicking suspicious links or sharing personal information with unknown parties.
• Enable banking notifications: Allow mobile notifications from your financial service so you get an alert every time there is a transaction over a certain amount on your account. This can help to detect fraud early.

The Role of Insurance and Credit Protection

Insurance can play a vital role in mitigating the financial impact of cybercrime. Some policies cover losses due to bank fraud, identity theft, or other forms of online crime. Credit protection services can also help shield your credit profile from fraudulent activity.

If you have been a victim of fraud, we recommend checking your insurance policies to see if you have any coverage.

If you own a business, it is prudent to review your level of cybercrime insurance with your insurance broker, as these types of claims are becoming more and more common.

Seeking Help After Falling Victim to a Scam

If you are targeted by cybercriminals, swift action can help minimize the damage. Be sure to take these steps if you notice possible fraud:

• Report the crime: Notify local authorities and relevant financial institutions.
• Freeze your credit: Place a credit freeze to prevent further fraudulent accounts from being opened in your name.
• Consult a trusted advisor: A lawyer or accountant can be a useful resource.
• Consider changing your bank account: New accounts prevent any future problems if someone has access to your current bank information. Talk to your bank for further advice.
• Connect with a Licensed Insolvency Trustee: Bankruptcy may be the only viable option in severe cases. However, the most popular way to consolidate debt in Canada is a Consumer Proposal. Both federally regulated options help the honest but unfortunate person gain a fresh start. Only a LIT can help you file for these debt relief solutions.

Conclusion

The financial risks posed by cybercrime and online scams are significant, with the potential to cause lasting damage to victims’ lives. While Bankruptcy is a worst-case scenario, it is a reality for some who fall prey to these schemes.

By prioritizing computer security, investing in identity theft protection, and remaining vigilant against fraud, you can reduce your risk of financial ruin. Awareness and proactive measures are your best defense.

If you have fallen victim to some type of financial scam that has disrupted your finances and caused you to take on debt, we invite you to contact one of our convenient offices to discuss what options are available to you.