When people or organizations have more debts than they can manage, they sometimes file for bankruptcy in a federal bankruptcy court. When you file for bankruptcy, your creditors can no longer on their own try to sue you or collect your property to satisfy unpaid debts. Instead, your creditors must go to the bankruptcy court in which you've filed your bankruptcy petition, where the judge will determine how much property you have, how much you owe, and who gets repaid. The process is designed to allow debtors a new start by getting out from under crushing debts.
When someone who has filed for bankruptcy or any other person conceals assets, makes false statements under penalty of perjury (orally or in writing), files a false claim, destroys or conceals financial records relevant to the case, or gives or takes a bribe, that person has committed criminal bankruptcy fraud, a federal crime.
Bankruptcy fraud can also be a civil wrong. The difference between criminal and civil fraud centers on the actor's intent: Criminal fraud requires proving that the defendant acted with a knowing and fraudulent intent, while civil fraud involves less deception and cheating.
(18 U.S.C.A. Section 152.)
Probably the most common form of criminal bankruptcy fraud occurs when someone filing for bankruptcy tries to hide or conceal assets, or otherwise tries to prevent the bankruptcy court from finding out exactly what the debtor owns. When you file for bankruptcy, the court will inventory all of your property and lump it together into what is called a bankruptcy estate. Court officials do this to determine how much you can pay to your creditors, or how much you can afford to pay them as part of a repayment plan. People will sometimes try to hide property from the court in an effort to prevent the court from using it to pay off the creditors, or try to hide how much they can afford to pay.
Bankruptcy fraud can also occur when a debtor attempts to bribe a creditor. Creditors are not required to file a claim against the debtor after the debtor files for bankruptcy. The debtor might, for example, try to convince a creditor not to file a claim by offering a cash payment if the creditor agrees not to file a claim.
You cannot accidentally commit bankruptcy fraud. If, for example, you accidentally forget to inform the bankruptcy court about the classic car your father gave you because he stored it in his garage and you never had physical possession, this isn't bankruptcy fraud. Criminal fraud involves knowingly misleading the court, hiding assets, or taking actions you know are fraudulent. So, knowingly concealing the car by trying to hide it in your father's garage would be bankruptcy fraud, whereas forgetting the car was given to you as a gift would not be.
Another type of bankruptcy fraud preys on consumers who are facing eviction or foreclosure. The scam involves a company that charges consumers a fee to stop the foreclosure or eviction process. However, what these scammers typically do is, after they've been paid, file a bankruptcy case in the consumer's name, often without notifying the consumer or even asking permission. Though this delays the foreclosure or eviction for a short time, it doesn't stop it because as soon as the court learns that you weren't a participant in the filing, it will dismiss the case. After that, the foreclosure will resume and the scammers will be nowhere to be found, having already left with the money.
Bankruptcy fraud is a broad category that includes a range of activity designed to take advantage of the bankruptcy process. Destroying important documents, making false statements to the court or court officials, filing for bankruptcy in different states simultaneously, or starting a business with the intent to buy items on credit and avoid paying by filing for bankruptcy are all forms of bankruptcy fraud. Also, creditors can commit bankruptcy fraud if, for example, they file false claims or make false statements about the debtor's repayments.
Occasionally, trustees, attorneys, or other officers of the court embezzle funds that are part of the bankruptcy estate. These acts are also considered bankruptcy fraud. (18 U.S.C. Section 157.)
Bankruptcy fraud can be punished with either civil or criminal penalties. When a person files for bankruptcy, the court appoints a bankruptcy trustee, a person who administers the case. If the trustee believes the debtor committed fraudulent actions, it can ask the court to impose a civil penalty. These penalties do not involve potential jail sentences or other criminal penalties.
However, if the fraud is serious enough, the trustee might refer the case to federal prosecutors. They can then investigate the claim and may file a criminal case against the debtor. Criminal penalties are more serious, involving jail, fines, and other penalties.
Bankruptcy fraud is a very serious situation. Any time your actions could lead to civil or criminal fraud, you need to speak to an experienced criminal defense attorney in your area immediately. Even if you already have a bankruptcy attorney, you may also need to speak to a criminal defense lawyer. Some bankruptcy attorneys are not experienced with the criminal justice process, and only a lawyer who specializes in criminal law is able to provide you with the advice you need to protect yourself during a criminal prosecution for bankruptcy fraud.