How to Avoid Committing Bankruptcy Fraud

How to Avoid Committing Bankruptcy Fraud
  • Opening Intro -

    Bankruptcy fraud is a federal crime. So understand how avoid bankruptcy fraud.

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I work frequently with David M. Offen, Esq. a Bankruptcy Lawyer in Philadelphia, PA  with over 20 years of experience, and recently I spoke with him about bankruptcy fraud. He gave me the following information which should help you avoid the types of financial acts and inadvertent misstatements and omissions that often result in a charge of bankruptcy fraud.

Be forewarned – if you are accused and charged with committing bankruptcy fraud, there are serious penalties. Even if you are found not guilty of bankruptcy crimes, the bankruptcy court can still take action to deny your discharge.

What is Bankruptcy Fraud?

Bankruptcy fraud is a felony investigated by the Federal Bureau of Investigation (FBI) and aggressively prosecuted by the United States Department of Justice (DOJ).

Bankruptcy fraud is most often committed by people who file a bankruptcy petition (called debtors), but attorneys, creditors, bankruptcy trustees, court personnel, and third parties can also be charged with and convicted of federal bankruptcy crimes as well as related crimes.

Bankruptcy crimes are defined in the federal criminal code and can be characterized generally like the following:

  1. Concealing assets;
  2. Concealing and falsifying Information;
  3. False identity and other ways to file without authorization;
  4. Bribery and Embezzlement.

Concealing Assets in Bankruptcy

If a debtor merely makes a mistake in disclosing assets on his or her petition, it is likely that he or she will not be charged with a crime – their attorney will be able to file an amended petition and schedules in that case to correct the mistake. However, if the debtor intentionally hides an asset, that is a federal crime.

Debtors must also disclose any property transfer that took place just prior to filing bankruptcy, and cannot ask someone else to hold or hide property for them during the pendency of their bankruptcy case.

Concealing and Falsifying Information

If a debtor is found to have intentionally destroyed or hidden financial records needed to support the information set forth in the bankruptcy petition, that is a crime. If a debtor intentionally files a false or incomplete bankruptcy form (for example, misstating income, expenses, or the value of an asset, or failing to list an asset or a source of income), that is a crime.

If a debtor repeats any falsehood in the filing while under oath during the 341(a) meeting of creditors, that constitutes an additional crime – perjury. Creditors have also been known to file claims they knew were false and this is bankruptcy fraud, and if they testify under oath at the 341(a) meeting, that is perjury.

False Identity and Filing without Authorization

A debtor must file under his or her own name and social security number.  Assuming a false identity in your bankruptcy filing is a crime.

If a debtor files bankruptcy petitions in multiple jurisdictions, whether owning property in those jurisdictions or not, that is a crime. Lastly, no one can file a bankruptcy petition for another.

Bribery and Embezzlement

If a debtor or attorney attempts to bribe a bankruptcy Trustee or any court official, that is a federal crime.  If a Trustee embezzles funds from a bankruptcy estate, that is a federal crime.

Bankruptcy Fraud Penalties

If someone is convicted of bankruptcy fraud, he or she is subject to the following penalties:

  1. Probation or special monitoring;
  2. Up to 20 years in federal prison;
  3. A fine of up to $250,000 for each count;
  4. An Order to pay restitution, and;
  5. Community service.

Other Federal Crimes Related to Bankruptcy Fraud

The actions that lead to prosecution for bankruptcy fraud may also violate other federal statutes. Federal prosecutors are often able to add counts for tax fraud, wire fraud, mail fraud, money laundering, bank fraud, identity theft, or conspiracy. Each additional count brings additional penalties in addition to those imposed for bankruptcy fraud.

Other Consequences of Bankruptcy Fraud

A federal felony conviction comes with more than just a jail sentence and a financial penalty – many of your rights can be restricted, sometimes for life.  For example, if you are convicted of bankruptcy fraud, you might not be able to:

  1. Vote.
  2. Travel outside the United States.
  3. Serve on a jury.
  4. Own a firearm.
  5. Obtain welfare benefits or housing assistance.
  6. Qualify for some jobs and security clearances.

Furthermore, because the level of proof necessary to bring civil sanctions in bankruptcy court is much lower than what must be proven in a criminal case, a debtor’s bankruptcy case or a creditor’s claim might be in jeopardy even if no criminal charges are filed, or charges are filed but the accused is found not guilty.

First, the bankruptcy court can dismiss a debtor’s case on its own motion or motion of a creditor or the Trustee, or simply deny the discharge in general, or deny the discharge of a particular debt. The court can also impose restrictions preventing a debtor from filing bankruptcy in the future.

other valuable tips:

Creditors Committing Bankruptcy Fraud

If a creditor files a false claim, the court might hold the creditor in contempt of court and fine that creditor. The court could also deny the creditor’s claim and/or enjoin the creditor from filing any further claims in the case.

Defending a Charge of Bankruptcy Fraud

As you’ve read, committing bankruptcy fraud has some serious consequences even if you are not charged, or if you are charged, not convicted. If you are suspected of bankruptcy fraud, please consult with your bankruptcy attorney as to the best course of action. Hopefully, this article will help you avoid such a charge!

About the Author
Veronica Baxter is a legal assistant and blogger living and working in the Philadelphia area.

Image Credit: bankruptcy fraud by Pixabay

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