15 Sep 23

Bankruptcy Fraud and Concealing Assets from Federal Authorities

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Last Updated on: 16th September 2023, 08:20 pm

Bankruptcy Fraud and Concealing Assets from Federal Authorities

When individuals or businesses file for bankruptcy, they are required by law to fully disclose all of their assets and liabilities. However, some debtors try to commit fraud by concealing assets in order to keep them from being liquidated to pay off debts. This type of fraud is illegal under federal law.

What is Bankruptcy Fraud?

Bankruptcy fraud refers to the intentional concealment of assets and/or false statements made by a debtor seeking bankruptcy protection. There are a few main types of bankruptcy fraud:

  • Concealment of assets – Failing to disclose all assets to prevent liquidation
  • False statements – Providing false info on bankruptcy paperwork, which may constitute perjury
  • Multiple filings – Filing for bankruptcy multiple times under different jurisdictions using false info
  • “Bust out” schemes – Using bankruptcy to avoid paying debts while racking up credit, then liquidating assets and absconding with the cash

While technical errors on bankruptcy paperwork are common, intentionally providing false information or concealing assets constitutes fraud and is a federal crime. Concealment of assets is the most common form of bankruptcy fraud, occurring in over two-thirds of fraudulent cases.

Federal Laws Against Bankruptcy Fraud

Bankruptcy fraud is prosecuted under Title 18, Chapter 9 of the United States Code. The main laws used to charge bankruptcy fraud include:

These laws make it a federal crime to engage in fraud, conceal assets, or make false statements/claims within a bankruptcy case. Charges may also include conspiracy, perjury, money laundering, and mail/wire fraud.

How Bankruptcy Fraud Is Committed

There are several techniques used to fraudulently conceal assets in bankruptcy:

  • Transferring ownership of assets to friends or relatives
  • Not disclosing financial accounts, investments, cash, or other liquid assets
  • Undervaluing assets like real estate, vehicles, jewelry etc. on paperwork
  • Claiming assets are “exempt” even if they do not qualify for exemption
  • Selling/gifting assets below market value before filing
  • Transferring fraudulent liens or mortgages to insiders
  • Stashing cash, valuables, or luxury items in storage units or safety deposit boxes

Debtors may also provide false information regarding their income, expenses, debts, creditors, or prior bankruptcy filings. Perjury can result from intentionally false statements on the bankruptcy petition and schedules.

Penalties for Bankruptcy Fraud

Bankruptcy fraud involving concealment of assets, false statements, or other “schemes to defraud” creditors may be charged as a felony. Penalties can include:

  • Up to 5 years in federal prison
  • Fines up to $250,000 for individuals or $500,000 for organizations
  • Restitution to creditors and victims
  • Loss of discharge of debts
  • Seizure of concealed assets

Even simple mistakes or omissions without intent can lead to denial of discharge, so precautions should be taken to provide complete and accurate disclosures.

How Federal Authorities Investigate Bankruptcy Fraud

Bankruptcy fraud is often uncovered through a few common events:

  • Tips from creditors who suspect dishonesty
  • Discrepancies between paperwork and records located by investigators
  • Uncovering concealed accounts or assets
  • Law enforcement surveillance identifying transferred assets
  • Inconsistencies in paperwork between multiple filings

Investigators use techniques like reviewing financial records, tracing asset transfers, conducting background checks, interviewing associates, and surveillance. Forensic accounting can follow paper trails and identify suspicious activity.

Defenses Against Bankruptcy Fraud Charges

Possible defenses in bankruptcy fraud cases include:

  • Lack of intent – The false statements or omissions were accidental mistakes, not intentional fraud.
  • Reliance on counsel – Acting on bad legal advice from an attorney.
  • Statute of limitations – The alleged offenses are too old to prosecute.
  • Duress – You were coerced into committing fraud under threat.

An experienced federal criminal defense attorney can evaluate the evidence and build an effective defense to contest the charges. In many cases, charges may be reduced or dismissed through effective negotiation.

Avoiding Bankruptcy Fraud Allegations

To avoid allegations of bankruptcy fraud, debtors should:

  • Fully disclose all assets, liabilities, income sources, etc.
  • Avoid transferring assets prior to bankruptcy.
  • Review paperwork carefully to ensure accuracy.
  • Correct any errors or omissions immediately.
  • Keep detailed records to support information provided.
  • Consult an attorney if unsure about disclosures.

Honesty and transparency are key to avoiding fraud allegations. Unintentional mistakes can still have serious consequences, so debtors should take care to provide complete and accurate information.

Get Experienced Legal Help

Allegations of bankruptcy fraud should be taken very seriously. The laws and penalties are complex. An experienced federal criminal defense attorney can protect your rights and build the strongest defense. For help avoiding criminal charges, consult a lawyer today.