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Bankruptcy fraud may be charged as either a felony or as civil fraud. Either charge requires proving the fraudulent intent of the accused. This includes committing perjury (either orally or in writing), concealing or destroying records, concealing assets, filing false claims, or giving or taking bribes.
The protections offered by bankruptcy are numerous, but when individuals or corporations abuse the system, the cost of those abuses pass to everyone in the system, including lenders and others filing for bankruptcy protection. As a result, bankruptcy fraud cases are taken very seriously by the courts.
What is Bankruptcy Fraud?
Bankruptcy fraud occurs when someone who files for bankruptcy protection destroys relevant financial records, files false claims, or otherwise intentionally misleads or lies to representatives of the bankruptcy court.
In a bankruptcy case, the court reviews the inventory of your assets, including homes, vehicles, bank accounts, and other properties. The court uses this inventory to determine what the debtor can pay his or her creditors.
The majority of bankruptcy fraud involves hiding or concealing assets. This often takes the form of transferring assets to another person or entity, including friends, relatives, and business associates. Fraudsters do this is to prevent the court from using these assets to pay creditors, or to prevent the court from including these assets in its determination of what you can afford to pay.
Other types of bankruptcy fraud include filing in multiple states simultaneously or running up debt by buying items on credit with the intention of filing for bankruptcy without ever making a payment. There are also cases of bankruptcy fraud in which the trustee, attorney, or other court member embezzles funds from the estate. Even creditors can be convicted of bankruptcy fraud if they make false claims about your payments.
There is also non-debtor fraud, which is a scam that targets homeowners facing foreclosure. The scammer approaches the homeowner, promising to stop the foreclosure. Once the homeowner pays the fee, the fraudulent organization files for bankruptcy in homeowner's name, without his or her knowledge. This delays the foreclosure process, but does not stop it.
Once the court determines you did not file for bankruptcy, the case is dismissed and the foreclosure process resumes.
What is Intent?
Honest mistakes in completing bankruptcy forms do not count as fraud. There must be fraudulent intent. Unfortunately, it's easy to make these types of mistakes, but much harder to prove you did not intend to do so. This is why most people choose to hire an attorney when filing for bankruptcy.
Intent is knowingly hiding assets, making false statements, or committing any of the other actions determined to be bankruptcy fraud.
What are the Penalties for Bankruptcy Fraud?
Penalties for bankruptcy fraud may be either civil or criminal.
Civil charges occur when the bankruptcy trustee (the person administering the case) suspects fraud. He or she petitions the court to impose civil penalties. These may include:
- Forfeiture of discharge rights: This means you no longer have bankruptcy protection against your creditors, allowing them to foreclose, sue you, or otherwise attempt to collect monies owed.
- Loss of exemptions: In a bankruptcy, some property is exempt from creditor repayment determinations. If convicted of bankruptcy fraud, you may lose these exemptions, meaning that creditors may now seize this property.
The trustee may refer your case to a federal prosecutor if he or she deems the level of fraud committed warrants such an escalation. It then becomes a criminal case, with harsher penalties. These include:
- Fines: Bankruptcy fraud carries steep fines, up to $250,000 for each fraudulent claim or action.
- Prison: The maximum sentence for bankruptcy fraud is 5 years. However, at the court's discretion, you may receive the maximum sentence for each fraudulent action.
- Probation: You may receive probation in lieu of or in addition to incarceration, typically for a period between 1 and 3 years. Probation includes certain requirements, such as regular meetings with a probation officer and remaining crime-free. Failure to comply with these terms results in either a lengthier probation sentence or serving the remainder of your time in prison.
Schedule a Free Consultation
If you face bankruptcy fraud charges, schedule a free consultation with an criminal defense attorney, preferably one with experience in fighting fraud charges. Even if you have a bankruptcy attorney, you want to speak to an attorney experienced in defending clients facing criminal charges. He or she will review your case and advise you on your next steps.