Bankruptcy fraud is any action taken in a bankruptcy case that doesn't represent accurate information. To be convicted of fraud, you must have done something intentionally to get an advantage during the bankruptcy process. If you are charged with fraud for an honest mistake, you may be able to defend yourself and correct your error.
If you are charged with bankruptcy fraud by the U.S. Department of Justice, you could face $250,000 in fines (which are not dischargeable debt) and up to five years in federal prison. These laws are part of the Bankruptcy Code, 18 U.S.C.
Law enforcement will arrest you for these criminal charges, and your case will be reviewed by the U.S. Attorney's Office. Through a full criminal investigation, authorities will review your history for financial crimes — any further hiding or lying could lead to perjury charges.
Bankruptcy fraud is a serious white collar crime. You should contact a criminal defense lawyer right away, or work with your bankruptcy lawyer if they have defense experience.
There are many ways someone can commit fraud during their bankruptcy filing. Making an honest mistake can happen, and it will be up to your attorney to prove your intent was not to commit fraud.
It is always better to be safe than sorry. Avoid common mistakes, such as:
Failing in the communication with the Bankruptcy Trustee or with the Court; or, failing to do so in a timely.
Failing to Complete documents and forms.
Failing to disclose all assets and accounts.
Failing to double-check your forms, including completing all fields on a form.
Common types of bankruptcy fraud involve a bankruptcy filer:
Hiding accounts or property, or hiding the real value of assets
Lying about money or property on your bankruptcy petition; which constitutes false statements or perjury.
Transferring money to friends or family or hiding it in cash.
Taking on debt and filing bankruptcy over and over.
It is understandable to want to keep your home or car, or at times to under-value those assets for the purpose of preserving accumulated wealth. But hiding these assets is not the way to go. It is very easy for your bankruptcy trustee to find them.
During a Chapter 7 bankruptcy, your secured debt (debt for property like a house or a car) can be paid off with seized assets. Your bankruptcy trustee is assigned to your case to determine what, if anything, should be taken and sold to cover your debts. State law recognizes exemptions from that which can be seized. Therefore, you can keep a reasonably priced home or car. If you own your home or car outright, then it cannot be seized, though you can make the personal decision to sell it to cover your debts.
Part of the filing constitutes a property inventory, where you will be asked to list all your property, whether it is owned, partially paid off, inherited, gifted, or from a personal or bank loan. This is called your "bankruptcy estate." This can feel like the bankruptcy courts are trying to take everything you own, so some people commit fraud by leaving assets off this list.
Your best choice is to put everything on this list. Much of your property will be exempt and cannot be sold in the bankruptcy proceeding. If you leave something off the list or transfer money to someone else to hide it. Your bankruptcy trustee will review the list and your state's rules on exemptions will be assessed. If not fully disclosed and then discovered, the money or asset can be deemed nonexempt or can be seized by the trustee
Hiding assets in a fraud scheme will backfire on many filers who would have had the property protected in the first place and may now find themselves in legal proceedings which could cost them much more than the failure to disclosed asset value was even worth.
Sometimes, people list assets but try to hide or downplay how much they are worth. Your trustee can have the property valued, so they will be able to find out the truth. Even if you weren't aware of how much an asset was worth and made an honest mistake, it could be considered concealment of assets or perjury. When in doubt, you or your attorney can get a fair assessment of the property before you list it on your bankruptcy forms. Undervaluing property can be an honest mistake, but you should take every action to avoid it. Getting appraisals or finding old receipts on art, jewelry, equipment, and other assets will keep you safe in the long run — and does not mean a trustee will come to seize every expensive or sentimental item you own. Your state has wild card exemptions to help you keep some items.
It is not a good idea to hide assets and money before you file for bankruptcy. Your case does not start the day you submit forms because your credit history and accounts can show all your past actions.
Depending on the classification of certain situations, the trustee assigned to a case, can look back on your history from 90 days to two years. Furthermore, if you face criminal fraud charges and there is an evidence trail, the courts can look back even further. There is a statute of limitations of seven years for fraud, and it can open up a can of worms for past crimes and spread the blame to your family and friends.
These are called "pre-bankruptcy actions." Common fraudulent pre-bankruptcy actions include:
Gifting large amounts of money or property to others
Transferring a car, boat, or property titles to family or children
Selling property for an insignificant amount of money (for example, selling a $20,000 boat to a friend for $500 so you can repurchase it later)
Some small charitable contributions are not considered fraudulent under the Bankruptcy Code.
The best way to avoid fraud in a situation like this is to disclose any sales, major changes, gifting, transfer, or other significant financial actions to your trustee. You can have a conversation about what you did and why, and work with your attorney if a transfer is an issue.
Honest mistakes do happen. Having a bankruptcy attorney on your side helps fix common errors or matters that need to be cleared up during the process. They can also help you avoid mistakes before your trustee ever sees the paperwork. A small mistake will not launch a criminal investigation into your case, but your trustee might decide the error was an attempt to hide fraud or start to look over your forms with extra care. That can lead to charges of perjury or a fraud case against you.
Any incomplete or wrong information is always a red flag to bankruptcy trustees and the courts. Since you need debt relief as fast as possible, it is in your best interest to clear up mistakes right away and be honest about your information.