What Is Bankruptcy Fraud?
Bankruptcy fraud is a generic term that applies to criminal acts committed during the bankruptcy process. The federal law contains bankruptcy-related prohibitions such as concealment of assets, concealment or destruction of documents, conflicts of interest, fraudulent claims, false statements or declarations, and fee fixing or redistribution arrangements. Often a crime under the bankruptcy fraud statutes is committed in conjunction with crimes such as credit card fraud, identity theft, mortgage fraud, money laundering, mail and wire fraud, etc.
The Federal Bureau of Investigation (FBI) is the primary investigative agency responsible for addressing bankruptcy fraud. The FBI often partners with other federal agencies like the Internal Revenue Service to investigate bankruptcy fraud. In some rare cases a debtor may have violated a state law criminal statute and a local or state prosecutor may become involved.
Bankruptcy fraud is an intent crime, which means that the debtor must have a “guilty mind” when committing the act. Consequently, hiding assets and lying to the bankruptcy court or trustee is criminal. On the other hand, strategic bankruptcy, planning your bankruptcy case with the assistance of a licensed attorney, is not criminal. For instance, selling your car to your brother for $100 is fine, if the car is actually worth $100. Selling it to your brother for $100 when it is actually worth $5,000 may be criminal. Let an experienced bankruptcy attorney advise you before making any financial transfers.
An investigation of bankruptcy fraud begins with the U.S. Trustee Program, part of the Department of Justice. When a bankruptcy trustee encounters suspected fraud, he or she may refer the case to the U.S. attorney and to the FBI. Not every case is sent for criminal prosecution. The trustee can request civil penalties from the bankruptcy judge, such as dismissing the case and/or denial of bankruptcy discharge. In some extreme cases a debtor engaging in fraud may be prohibited from filing bankruptcy again.
Avoiding bankruptcy fraud is easy, simply fully disclose your financial situation and remain honest about your assets and income. In bankruptcy, honesty is the best policy. If you are in financial distress, call an experienced bankruptcy attorney to learn how the federal law can help.