Bankruptcy Fraud

A person who files for bankruptcy must declare all assets and liabilities to the bankruptcy court so the court can distribute the estate to the creditors according to bankruptcy laws. The intentional failure to declare a valuable asset is fraud and will get a debtor into criminal trouble. Bankruptcy fraud is prohibited under Title 18 U.S.C. §152. This white collar crime makes it a crime to conceal assets or make false statements in connection with a bankruptcy proceeding.

Bankruptcy fraud occurs when a debtor in bankruptcy knowingly and fraudulently conceals, from a trustee, custodian, or other court officer charged with control or custody of property, any property belonging to the estate of the debtor. The statute makes it a crime to give a false statement or account of assets or liabilities in relation to a Chapter 7 bankruptcy or a Chapter 11 bankruptcy. The false statements must relate to a material matter. A violation of §152 carries a penalty of five years in prison.

Third Parties can be Liable for Bankruptcy Fraud

The statute punishes bankruptcy fraud by persons other than the debtor. It makes it a crime for a third party to knowingly and fraudulently receive a material amount of property from a debtor after the debtor has filed a bankruptcy case. It is also a violation of the bankruptcy fraud statute to fraudulently conceal or destroy any financial information related to the property or financial affairs of the debtor.

An example of a debtor who committed bankruptcy fraud was seen in U.S. v. Dennis . Dennis was a businessman who ran a chain of convenience stores. After his business filed a Chapter 11 bankruptcy, Dennis then committed the following acts of bankruptcy fraud:

1. Transferred money from the business bank account to his personal account without reporting the transfer;
2. Falsely stated that the company had no bank accounts;
3. Back dated sales receipts for assets he sold to another business so the assets could not be reached by the bankruptcy court; and
4. Destroyed documents related to the business’s financial affaires.

Dennis was found guilty of bankruptcy fraud for concealing property belonging to the bankruptcy estate which he was required to disclose to the bankruptcy court. The statute of limitations for a bankruptcy fraud prosecution does not begin to run until the debtor is discharged.

A debt may be disallowed from bankruptcy discharge if the debtor personally commits actual fraud. A debtor’s intentional failure to file tax returns and to pay taxes owed to the Internal Revenue Service is sufficient to show he willfully attempted to evade or defeat a tax. This is more serious than a debtor’s failure to file income tax returns or pay taxes when due.

Bankruptcy fraud requires proof that the debtor acted with the intent to deceive. Whether a debtor in a bankruptcy acted with the requisite intent, is a question of fact reviewed by the appellate court for clear error.

If you or someone you know is being investigated for a federal crime or a state crime, or is accused of committing any type of white collar crime, you need an attorney to represent you who has the experience and expertise in criminal law to handle the problem. Ken Swartz, one of the top Miami Florida Bar Board Certified criminal defense attorneys in the state of Florida. As one of the top Miami criminal defense attorneys in Florida, he is prepared for your defense.