Bankruptcy fraud is a serious federal crime that carries a substantial prison term. Below we discuss federal bankruptcy fraud, its punishment, common bankruptcy fraud examples, and how a defense lawyer can help.
If you or a loved one are accused of federal bankruptcy fraud, you could face serious criminal consequences. These can include fines and imprisonment for up to five years. You might lose everything if you don’t obtain competent legal assistance in federal court from a knowledgeable bankruptcy fraud defense attorney.
Contact us at the Zoukis Consulting Group if you are charged with federal bankruptcy fraud. Our bankruptcy fraud lawyer partners can answer your questions and help develop a strategy for success.
Table of contents
- What is Federal Bankruptcy Fraud?
- Bankruptcy Fraud Examples
- Federal Bankruptcy Fraud Elements
- 18 U.S.C. § 157 Statute
- Concealment of Assets: 18 U.S.C. § 152 Statute
- Bankruptcy Punishment
- Legal Defenses to Bankruptcy Fraud
- Federal Bankruptcy Fraud Statute of Limitations
- Who Investigates Federal Bankruptcy Fraud?
- Who Prosecutes Federal Bankruptcy Fraud?
- Notorious Federal Bankruptcy Fraud Cases
- Bankruptcy Fraud Statistics
- What to Do if You Are Charged with Federal Bankruptcy Fraud
- Your Federal Bankruptcy Fraud Experts
What is Federal Bankruptcy Fraud?
Bankruptcy laws protect individuals dealing with significant debt. A person may be found guilty of federal bankruptcy fraud if they:
- Knowingly violating these protections by making fraudulent statements on bankruptcy paperwork.
- Hide or transfer assets to avoid being distributed to creditors.
- Do anything else prohibited under federal bankruptcy law.
Bankruptcy fraud is a catch-all phrase referring to a broad range of white-collar criminal acts. These may occur during a Chapter 7, Chapter 13, or Chapter 11 bankruptcy case.
This offense comprises submitting a petition for bankruptcy protection or any other item as part of a scheme or trick to defraud creditors. Individuals who make fraudulent claims, representations, and false promises in a bankruptcy proceeding risk federal criminal charges.
It is critical to hire a bankruptcy fraud defense attorney if charged with this type of crime. Federal law proscribes severe bankruptcy punishments for these crimes.
Federal Bankruptcy Fraud Definition
Many prohibited acts done knowingly and fraudulently in a bankruptcy proceeding are known as bankruptcy fraud, including:
- Hiding Assets
- Destroying or Withholding Documents
- Falsifying Documents
Making false claims about assets when filing for bankruptcy protection is one of the most frequent methods of committing fraud. Other examples of committing bankruptcy fraud include:
- Illegal money transfers to family members or friends
- Hiding property or assets abroad
- Failing to disclose sources of income
Bankruptcy Fraud Examples
During the recent economic recession, individuals have become more prone to conceal or misstate assets during bankruptcy proceedings. These are federal bankruptcy fraud examples. There are many techniques by which bankruptcy fraud may be accomplished, including the following examples.
If charged with one of these bankruptcy fraud examples, immediately call a lawyer. They can advise you best on how to proceed.
When a person files for bankruptcy, the court orders all accessible assets to be seized and sold. According to the court’s ruling, money from the liquidated assets is divided among the claimants.
However, courts are only aware of debtors’ assets according to their acknowledgment. Debtors commonly don’t reveal all assets relevant in their proceedings in federal bankruptcy cases. This is a textbook bankruptcy fraud example, which carries a potentially significant punishment.
Account concealment is the most common type of bankruptcy fraud. It accounts for approximately 70 percent of all fraudulent bankruptcy filings by individuals. This fraud occurs when a person knowingly fails to completely account for assets on the bankruptcy petition. Business owners frequently hide assets during bankruptcy proceedings by transferring money or property to relatives or friends to avoid forfeiture.
This form of white-collar crime is prosecuted aggressively. Federal courts often punish bankruptcy fraud defendants with imprisonment terms.
Filings in Numerous Jurisdictions
Federal bankruptcy courts operate in silos. This refers to the reality that they don’t share information with other courts. This makes it possible to file for bankruptcy in multiple jurisdictions using both authentic and forged identification (i.e., some genuine, some counterfeit).
Several filings result when people file for bankruptcy in multiple states with their genuine names and information (e.g., Social Security numbers), false names and information, or both to make the claims. The filers generally list the same assets on each fraudulent claim but intentionally neglect to include all assets. This, like hiding assets, fraudulently protects the liquidation of their valuables when debts are resolved.
This often shields filers from repossessions, judgments, and collections levied against them over the legal limit. The borrower is utilizing the bankruptcy process for financial gain by filing for bankruptcy in multiple jurisdictions at once and providing false information to do so. This is another example of bankruptcy fraud.
Petition Mills: Third-Party Schemes
Petition mills are another example of federal bankruptcy fraud. Here, a property renter falls behind in their rent. Months pass, and the renter is still unable to pay their rent, placing them at risk of eviction. An eviction consultancy then appears, promising to assist the renter in avoiding eviction by negotiating on their behalf.
Desperate with their financial predicament, the renter agrees to the offer and gives the consultancy power of attorney. The renter agrees to pay the consultancy to solve the eviction problem in return for their services.
Instead of negotiating, the consultancy (often called a “Petition Mill”) files for bankruptcy on behalf of the renter. They then file numerous petitions during bankruptcy court proceedings, extending the timeline and damaging the renter’s credit score.
This form of bankruptcy fraud is more technical and administrative because it requires submitting fraudulent or incorrect paperwork to the court.
There are grounds for bankruptcy fraud charges when material facts are intentionally hidden. This is especially true when the information’s inclusion significantly alters the decision.
Furthermore, because bankruptcy forms are sworn testimony in a court of law, any intentional misstatement or missing documentation is perjurious. These can result in numerous legal ramifications.
The federal government takes action against perjury and fraud in bankruptcy cases under Chapter 9 of the United States Code. In these cases, a bankruptcy fraud defense attorney can argue mitigating circumstances, seeking to reduce the possible punishment.
Federal Bankruptcy Fraud Elements
These factors must be proven beyond a reasonable doubt to show that a debtor is attempting to hide assets in violation of 18 U.S.C. § 152:
- Knowing and fraudulent intentions of the debtor
- Concealing any of the debtor’s assets
- In the context of a bankruptcy proceeding
- From the courts, bankruptcy trustees, or creditors
18 U.S.C. § 157 Statute
The primary federal statute covering bankruptcy fraud is 18 U.S.C. § 157. This statute explains that any individual engaging in fraudulent activity with a bankruptcy filing may be charged and punished.
The federal bankruptcy statute prohibits any person from “devis[ing] a scheme or artifice to defraud” to “execut[e] or conceal[e]” such a scheme in conjunction with a federal bankruptcy proceeding.
The federal statute also prohibits filing “a fraudulent involuntary petition,” “a document in a proceeding,” or making “false or fraudulent representation[s], claim[s], or promise[s]” in these proceedings.
This complex federal statute requires an experienced bankruptcy fraud defense attorney to challenge.
Concealment of Assets: 18 U.S.C. § 152 Statute
Bankruptcy fraud is also prosecuted under 18 U.S.C. § 152. This federal statute prohibits fraudulent concealment of assets and other conduct before and during a bankruptcy case. This includes knowingly and fraudulently omitting information from the trustee.
The federal bankruptcy code and the rules that apply to any arrangement, proceeding, or plan under it are governed by 18 U.S.C. §§ 152 to 157. These federal statutes apply to any bankruptcy fraud case when someone is accused of violating them.
If you are charged with this crime in a federal court, you must understand the possible criminal consequences if convicted. Bankruptcy punishment turns on the recommendations of the Federal Sentencing Guidelines in every federal case.
In general, the U.S. Sentencing Guidelines recommend a maximum prison sentence of five years for people convicted of bankruptcy fraud in federal court. A $250,000 fine is also possible.
However, numerous federal laws prohibit specific forms of fraud. Each has its potential punishment for breaches of federal law. A bankruptcy fraud defense attorney can explain how best to proceed.
Legal Defenses to Bankruptcy Fraud
Fraud-related offenses are taken severely by the federal government, which has the time and resources to investigate and punish offenders. Federal prosecutors can bring criminal charges against anyone accused of bankruptcy fraud (e.g., debtors, creditors, trustees, etc.). They must show that the defendant intentionally and fraudulently misrepresented a material fact to secure a conviction.
Whatever your case circumstances are, you need a skilled bankruptcy fraud defense attorney on your side. Your attorney will offer alternative explanations for the prosecution’s evidence. Additionally, your lawyer will argue that you are innocent of the crime. This is where our partner bankruptcy fraud defense attorneys come in.
Our legal team works tirelessly to demonstrate that your bankruptcy fraud case was not intentional and that a conviction is unjustified. Hiring an experienced bankruptcy fraud lawyer will help you fight against federal charges and avoid harsh criminal penalties.
Common Legal Defenses to Federal Bankruptcy Fraud
Our bankruptcy fraud lawyer partners know which legal strategies are most likely to achieve the best possible outcome in your bankruptcy fraud case. The following are common defenses against these crimes:
- Expired Statute of Limitations – The statute of limitations has passed, thereby prohibiting prosecution.
- Lack of Specific Intent – This crime requires both the physical act and requisite mental intent. Your bankruptcy fraud lawyer may argue that you did not intend to deceive anyone or commit federal bankruptcy fraud.
- Actual Mistake – It was an oversight on your part, not actual fraud. You didn’t disclose the transfer of an asset in your bankruptcy petition because of a mistake. Your failure to identify a valuable asset or reveal the transfer of an item in your bankruptcy filing was an honest mistake, not a fraudulent scheme.
- Legitimate Legal Purpose – The act you’re accused of was intended to achieve a lawful aim (e.g., selling an asset for half its value to reduce tax liability). The offense conduct was an action taken to attain a legal or legitimate goal (e.g., assets sales for half their worth to take advantage of tax deductions).
- Withdrawal or Renunciation – You made a mistake and corrected it quickly, or you regretted intentionally excluding an asset. You promptly corrected court filings upon recognizing the error. Likewise, you made a mistake in your asset inclusions.
- Insufficient Evidence – There is insufficient evidence to establish guilt beyond a reasonable doubt. There isn’t enough evidence to prove that you intended to commit or actually committed a federal crime.
Federal Bankruptcy Fraud Statute of Limitations
The statute of limitations for federal bankruptcy fraud is five years, as it is for many other federal crimes. 18 U.S.C. § 3284 contains a unique statute of limitations for hiding assets in bankruptcy proceedings.
According to 18 U.S.C. § 3284, the statute of limitations does not begin to run until the debtor’s debt has been paid or the discharge denied. As a result, since the fraudulent transfer occurred more than five years ago, the five-year period does not start running until after the discharge or denial of discharge occurs.
Who Investigates Federal Bankruptcy Fraud?
The Federal Bureau of Investigations is the primary federal agency responsible for investigating bankruptcy fraud. While other financial offenses attract significant resources from the FBI, the agency considers bankruptcy fraud a severe threat to the nation’s economic stability. These other crimes include mortgage fraud, financial institution fraud, and health care fraud.
The U.S. Department of Justice’s U.S. Trustees Program oversees the federal bankruptcy court system. This department discovers the fraud and refers cases to the appropriate U.S. Attorney’s Office and the FBI for investigation. Depending on the intricacy of the potential bankruptcy fraud investigation, agents might employ more sophisticated investigative approaches, including:
- Confidential Human Sources
- FBI Undercover Operations
- Electronic Surveillance
Office of the United States Trustee
The DOJ’s U.S. Trustee Program ensures that the bankruptcy systems in all 50 states are fair and equitable.
Their responsibilities include:
- Choosing to have one or more private trustees administer and manage assets in Chapter 7, 12, or 13 cases instead of a creditor representative. The court can also delegate administration and management of funds in bankruptcy cases under Chapters 7, 12, and 13 to the private trustees who collect and disburse funds to creditors.
- The department also oversees the bankruptcy system, including ensuring case information is disseminated through reports, schedules, disclosure statements, reorganization plans, and other filings per the Bankruptcy Code.
- Reviewing attorney and accountant payment application fees in Chapter 11 company reorganization cases.
- Ensure that the U.S. Trustee Program fulfills its mission and protects bankruptcy beneficiaries. This department detects fraud and abuse and refers criminal matters to the U.S. Attorney’s Office.
The Executive Office in Washington, D.C., oversees the U.S. Trustee Program. The Executive Office manages the program’s substantive activities, including administrative duties.
Who Prosecutes Federal Bankruptcy Fraud?
The U.S. Attorney’s Office receives referrals from federal law enforcement agencies regarding potential bankruptcy fraud. After reviewing investigatory reports, this office determines whether to pursue federal charges for bankruptcy fraud and its punishment.
Notorious Federal Bankruptcy Fraud Cases
Although bankruptcy fraud is not recognized as a sensational news topic, it does happen. Cases sometimes demonstrate that even the wealthy and famous can’t outsmart the bankruptcy courts. This can even be true with an experienced criminal defense attorney on your side. The following are examples of visible bankruptcy fraud punishments.
Teresa Giudice: Real Housewives of New Jersey
Teresa Giudice, a cast member of Bravo’s popular reality series “The Real Housewives of New Jersey,” and her spouse Joe Giudice, pleaded guilty to 41 fraud counts. These charges included bankruptcy fraud and other offenses for failing to file tax returns for five years.
She received 11 months in federal prison, while Joe served 41 months in the Federal Bureau of Prisons. Joe was deported after his release since he was not a U.S. citizen.
Abby Lee Miller: Dance Moms
Reality TV personality Abby Lee Miller inadvertently revealed assets while trying to conceal them during her bankruptcy case. The “Dance Moms” owned a dance studio featured in the Lifetime series. She filed Chapter 11 in 2010. Her charges were based on her failure to disclose television earnings and revenue.
Miller was indicted for bankruptcy fraud, concealment of assets, and making false statements. She had committed perjury in documents she submitted to the court. Even after suspicions were raised, Miller continued to devise new methods to hide money. Miller did so by having checks made out to others and channeling earnings through corporations she established to avoid deposit reporting.
She was sentenced to 12 months and a day in federal prison, two years of supervised release, a $40,000 fine, and $120,000 in compensation for illegally bringing Australian cash into the United States.
Lenny Dykstra: New York Mets Baseball Player
Reality TV stars are not the only ones accused of celebrity bankruptcy fraud. Professional sports appear to be rife with financial misconduct. An excellent example is Lenny Dykstra, a well-known baseball player who spent 12 seasons with the New York Mets and Philadelphia Phillies.
Following his retirement from baseball, things did not go well for Dykstra. His enterprises ended, his mansion was foreclosed on, and he was charged with grand theft auto, sexual assault, and drug violations.
He claimed debts of $10 million to $20 million in his bankruptcy filing but only $50,000 in assets. Later, he was accused of hiding and then selling over $400,000 worth of sports memorabilia, appliances, sconces, and plumbing fixtures from his mansion without notifying the bankruptcy court in official bankruptcy filings.
In 2013, he was indicted on many charges, including obstruction of justice, fraud, concealment of assets, and making false statements. He accepted a plea bargain and served six-and-a-half months in federal prison as part of the agreement. He also had to complete 500 hours of community service and pay a $200,000 fine.
Bankruptcy Fraud Statistics
Historically, bankruptcies have been the target of bankruptcy fraud allegations and punishment, with individuals rather than businesses being charged. However, corporate officials and agents, including board members, might be held liable under bankruptcy fraud laws.
According to an article published in a U.S. Department of Justice bulletin, prosecutors include charges of bankruptcy fraud and other criminal offenses when appropriate to secure convictions and increase punishment. This also improves the admissibility of persuasive evidence, such as:
- Sworn testimony from defendants
- Sympathetic creditor victims
- Comprehensive financial histories submitted during bankruptcy procedures
In the aftermath of the coronavirus-induced financial disaster, legal and other advisers may be accused of misusing bankruptcy procedures to hide assets and defraud potential bankruptcy candidates.
What to Do if You Are Charged with Federal Bankruptcy Fraud
Contact us if you are under investigation or indicted for bankruptcy fraud under 18 U.S.C. § 157. Our bankruptcy fraud lawyer partners can advise you on immediate steps.
Your bankruptcy fraud defense attorney can give guidance on safeguarding your rights and working towards the best possible case result. Any information shared is protected by the attorney-client relationship. Arguments can possibly be made there was no intention to defraud or insufficient evidence to establish a fraud crime.
It is also possible to avoid prosecution by getting the charges dismissed or negotiating with prosecutors for a plea agreement for a reduced bankruptcy punishment.
This could include a pre-indictment plea negotiation, a post-indictment negotiated settlement, or a jury trial. The facts and circumstances of your case will determine the best strategy to pursue. Your bankruptcy fraud lawyer can explain your best options.
Your Federal Bankruptcy Fraud Experts
If you are accused of federal bankruptcy fraud, your petition could be canceled. This could leave you with bills you can’t afford to pay and subject you to future collection efforts by creditors (e.g., foreclosures, repossessions, or wage garnishments). You might also be federally charged, which carries a lengthy prison term and massive fines in more severe circumstances.
Contact us at the Zoukis Consulting Group if you are under investigation or charged with federal bankruptcy fraud. Our experienced bankruptcy fraud federal criminal defense lawyer network can answer your questions and develop a robust defense strategy.
Published Feb 15, 2022 by Christopher Zoukis, JD, MBA | Last Updated by Christopher Zoukis, JD, MBA on Apr 22, 2022 at 11:57 am