Bankruptcy Fraud encompasses many different elements related to Bankruptcy Law. Bankruptcy Fraud can appear in many different forms. A Bankruptcy Practitioner can spend a lifetime focusing his or her practice solely on the representation of clients, either debtors or creditors, in matters relating to Bankruptcy Fraud.
Bankruptcy Fraud can be discerned more clearly by the actions of a debtor that demonstrate an actual intent to commit Bankruptcy Fraud. The debtor that announces his intent to commit Bankruptcy Fraud is not common. Real life does not operate like a Perry Mason episode, where the accused, submitted to a heated cross-examination, stands and announces, “Yes, I did it!”
The more commonly forms of Bankruptcy Fraud where actual intent is manifest includes circumstances where a debtor or his counsel attempts to bribe a court official, such as a Bankruptcy Trustee or a Bankruptcy Judge. Another instance may occur where a debtor files multiple Bankruptcies in different jurisdictions, while presenting either false or even true information. A debtor may intentionally submit either incomplete or false Bankruptcy Forms. A debtor may purposely conceal or not reveal property or assets that he or she fears may be subject to liquidation or sale by the Bankruptcy Trustee. It is said that the purposeful concealment of assets is the most common form of Bankruptcy Fraud.
Even in such examples, it is unlikely the actor will admit he or she had the actual intent to commit Bankruptcy Fraud. In such instances, the investigator or prosecutor will look at circumstantial evidence that indicates that the participant had the intent to commit Bankruptcy Fraud. This is sometimes referred to as badges of Fraud.
Such circumstantial evidence that may establish that the debtor had the requisite intent to commit Bankruptcy Fraud may include situations where the debtor was insolvent at the time of the transfer, where the debtor listed the property in his or her schedules for much less than its actual value, where the debtor transferred the property for much less than actual value, or where the debtor retained control of an asset that was transferred.
While such instances constitute a form of Fraud in a broader interpretation, such actions by themselves do not necessarily rise to the level of a punishable criminal offense. An insolvent debtor that transfers an asset for less than fair value before filing Bankruptcy may find the Bankruptcy Trustee assigned to his case will bring an Avoidance Action to void the transfer. Such an action is generally referred to as a Fraudulent Conveyance. An insolvent debtor that transfers an asset for less than fair value before filing Bankruptcy and does not reveal such transfer in his or her Bankruptcy Petition, or denies such transfer under questioning by either the Bankruptcy Trustee, US Trustee, or the Bankruptcy Judge, may find the levy of criminal charges against him or her.
The penalties for Bankruptcy Fraud can be somewhat severe. Bankruptcy Fraud is a Federal Crime, and Federal Prosecutors can introduce Federal charges for Bankruptcy Fraud. Federal Statute 18 USC states that a defendant who knowingly and fraudulently misrepresented a material fact in the Bankruptcy Court may receive the punishment of imprisonment of up to five years, a fine up to $250,000 or both. In order for such behavior to be punishable, please not the disparate elements necessary to prove Bankruptcy Fraud. The debtor or actor must have acted both knowingly and fraudulent. In addition, the actor must have misrepresented a material fact. If the participant did not act both knowingly and fraudulently, there is no criminal action. If the participant acted both knowingly and fraudulently, but the misrepresentation concerned a trivial matter, and not a material fact, then there is no crime, as stated in the Federal Statute.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 by its very name, was an act of legislation designed to prevent the abuse by debtors of the bankruptcy process. Whether such legislation was created because Bankruptcy Fraud was a significant problem, is more appropriately the subject of an another article. It is the opinion of the writer that the 2005 Act was drafted with the primary intention of reducing the rights of debtors in bankruptcy, and to favor the interests of the creditors, and banks.
18 USC 152 is titled Concealment of assets, false oath and claims; bribery. This Federal Statute enumerates nine actions which are considered to be fraudulent in Bankruptcy. Each of these actions require that the debtor or other participant, acted “knowingly and fraudulently”. Among these actions include concealment of property that is properly part of the debtor’s Bankruptcy Estate from the Bankruptcy Court, False Oaths, Perjury, presenting a false proof of claim against the debtor’s estate, receiving property from the debtor’s estate with the intent to circumvent the bankruptcy process, concealing or transferring property, and withholding relevant information the Bankruptcy Court or the United States Trustee.
Bankruptcy Fraud, as a subject will be presented by the writer in parts. The writer anticipates that this subject will encompass as many as 5-7 parts, as the subject of Bankruptcy Fraud is very broad. One however, could compile a multiple volume treatise on the subject of Bankruptcy Fraud. Bankruptcy Fraud engulfs large portions of the Bankruptcy Code, and in particular, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
Jay Weller is a Bankruptcy Attorney, practicing in Florida. Weller Legal Group has three offices serving the greater Tampa Bay region, including offices in Clearwater, Port Richey and Lakeland, Florida. Since 1993, Weller Legal Group has been dedicated to the representation of debtors in Bankruptcy matters, including Chapter 7 Bankruptcy and Chapter 13 Bankruptcy. The Attorneys, Counselor and Paralegals at Weller Legal Group are experienced and knowledgeable not only in Bankruptcy related matters, but also in Bankruptcy alternatives, including the Settlement of Debt, Defense of Foreclosures & Lawsuits, and Credit Repair. If you are in debt, we probably can help. If you are seeking representation, please contact us either through our website, at www.jayweller.com, or by calling us either Toll Free at 1-800-407-3328 (DEBT), or through the local phone numbers presented on our website.
Picture Credit: Matthew Henry