In a perfect world, everyone’s intentions when it comes to filing bankruptcy would be pure. The problem is that a perfect world does not exist.
People take advantage of the system and many times these people are less than honest in their filings and reporting of assets and debts. Bankruptcy fraud is what occurs when these types of situations occur. Here is what to know about bankruptcy fraud.
1.What is Bankruptcy Fraud?
Bankruptcy fraud occurs when someone knowingly commits a certain act in his or her bankruptcy case that is prohibited under the law. It is a very serious federal crime that occurs in cases more often than it should.
When fraud is suspected, it is the job of the United States Trustee to investigate the situation, and the U.S. Department of Justice prosecutes those who are found to have committed bankruptcy fraud.
If someone is convicted, that person may be fined up to $250,000 and may face a federal prison sentence for up to five years.
2. How Can It Be Proven?
The key to any type of crime is intent, and bankruptcy fraud is no different. The filer must have an actual intent to deceive the bankruptcy court. This means that the Trustee must be able to show evidence that the filer planned this deception and actively conducted the crime.
If an act was done or information left out inadvertently, it would be hard for the government to establish the level of intent needed for the crime.
3. Concealing Assets
What types of actions are considered intentional acts of fraud? One of the most common things debtors do in these situations is to conceal their assets. When a bankruptcy case is started, the debtor needs to fill out a great deal of paperwork, including disclosing all debts and assets.
Certain assets that are not protected under the federal or state exemption laws may be subject to liquidation by the trustee.
When a debtor deliberately conceals assets in an effort to hide these assets from liquidation: such as by transferring assets to a family member or friend, or by simply not including them in the submitted paperwork, this could be considered bankruptcy fraud.
4. Making False Statements
In addition to concealing assets, if the debtor is found to have made false statements to the bankruptcy court, he or she may also be found to have committed bankruptcy fraud. These statements can be made in person or in sworn documents submitted to the trustee, including the bankruptcy petition and financial statement of the debtor.
The debtor will also need to prepare and submit a schedule of assets and income and false statements cannot be made on any of these documents, as well. The key is that these false statements must be done with intent and not by pure mistake.
One question that bankruptcy courts do ask when it comes to these false statements is whether the misrepresentation that was made was material. “Material” means that the false statement actually played some influence in the outcome of the proceeding.
The determination of whether a fact, statement or omission is or is not material is made on a case-by-case basis, and it is always best that there be no misrepresentations at all.
A good rule of thumb is to ensure that before submitting the paperwork, a bankruptcy attorney reviews the petition and additional documents carefully with the filer to ensure that absolutely nothing is omitted.
5. Fraud by Multiple Filings
Another type of bankruptcy fraud may occur when a debtor makes multiple bankruptcy filings with intent to deceive or abuse the system. Sometimes debtors will file multiple cases in two or more states either using the same name or aliases with the intent to unfairly get out of debt.
The bankruptcy system is not meant to work in this manner. Not only do these multiple filings clog the system, but they also confuse the courts and allow debtors to unfairly and fraudulently hide assets from liquidation.
The bankruptcy petition normally requires that the debtor state whether he or she has previously filed any bankruptcy case and in what jurisdictions.
If the debtor cannot remember previous filings, fraud may be avoided, but a court may also have a hard time believing that someone simply “forgot” about a bankruptcy case, given how significant these filings tend to be.
CONTACT AN ARLINGTON BANKRUPTCY ATTORNEY FOR A FREE CONSULTATION TODAY
An experienced Texas bankruptcy lawyer can help you understand the duties and obligations required in the bankruptcy process. Call the Law Office of Marilyn D. Garner now at (817) 381-9292 for a free consultation to discuss how bankruptcy may help you.