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Last Updated on: 18th August 2023, 10:33 pm
Hiding Property, Misrepresenting Facts, and Other Misconduct in Bankruptcy Cases
Hiding property, misrepresenting facts, and engaging in other misconduct in bankruptcy cases can have serious consequences. Not only can it result in the dismissal of your case, but it may also affect your ability to file future cases. Additionally, fraud in bankruptcy can lead to prosecution in federal court, with potential penalties including up to five years in jail and fines of up to $250,000 for criminal bankruptcy fraud.
The Basics of Bankruptcy
In order to understand what constitutes bankruptcy fraud, it is important to have a basic understanding of the different types of bankruptcy. The most common types of bankruptcy for consumers are Chapter 7 and Chapter 13.
Chapter 7 bankruptcy involves the liquidation of assets, with the goal of discharging debts. If you are able to protect all of your assets through exemptions, you can complete a Chapter 7 bankruptcy without losing any property. This makes Chapter 7 a preferred method for those with “no asset” cases.
In order to qualify for Chapter 7 bankruptcy, you must pass a “means test.” This test compares your monthly income to a certain level set by the bankruptcy law. If your income is below the median for your state, you qualify under one part of the means test. If your income is above the median, you may still pass the means test by taking deductions into account. However, if your income exceeds a certain level, you may be required to file for Chapter 13 bankruptcy, which involves a repayment plan over a three or five-year period.
Businesses typically file for bankruptcy relief under Chapter 11, which allows them to propose a repayment plan to creditors and continue operating.
Acts of Bankruptcy Fraud
Bankruptcy fraud often involves debtors providing false information on their bankruptcy filings. This can include lying on the petition, schedules, or statements submitted as part of the bankruptcy process. Since these documents are signed under oath, false statements can constitute perjury.
Some of the specific questions asked on bankruptcy documents include:
- Whether you have filed for bankruptcy in the past eight years
- The identity, location, and estimated value of your property
- Transfers of property and money, especially to family members or company owners
- Monthly income and expenses
Intentionally misrepresenting information on bankruptcy schedules is considered fraud because it allows debtors to seek the protection of bankruptcy when they may not be eligible or to keep assets hidden from bankruptcy trustees. Debtors filing for Chapter 13 bankruptcy may also be charged with fraud for underreporting or hiding income in order to lower their plan payments.
In addition to false statements, debtors can also commit fraud by hiding assets. This may involve transferring assets to shell companies, family members, or other individuals. Some debtors may even file for bankruptcy in multiple jurisdictions using false identities or other false information.
Evidence in Bankruptcy Fraud Cases
Bankruptcy fraud cases often involve the examination of financial documents to uncover fraudulent practices. For example, a debtor may report less income on a bankruptcy filing than on a mortgage application. This discrepancy can be discovered by comparing mortgage applications, W-2 forms, income statements, and tax returns.
Prosecutors may also review a debtor’s social media posts to look for evidence of hidden assets or income. For instance, if a debtor claims to have no valuable possessions in their bankruptcy filings but posts pictures of expensive vacations or new purchases on social media, this can raise suspicions.
Bankruptcy trustees may also conduct further investigations to uncover hidden assets or income based on inconsistencies in the debtor’s filings.
Defending a Bankruptcy Fraud Prosecution
If you are facing prosecution for bankruptcy fraud, it is important to consult with a bankruptcy fraud defense attorney. These attorneys can help build a defense strategy to challenge the prosecution’s claim that you intended to deceive or make false statements on your bankruptcy forms.
Possible defenses may include:
- Showing that you were confused or misunderstood a question on the forms
- Providing evidence that you were not aware of certain assets or income
- Correcting any mistakes or errors in your filings as soon as you became aware of them
It is also worth noting that the statute of limitations for federal criminal prosecutions is generally five years from the date of the offense. If you are charged with concealing assets, the five-year deadline starts from the date you obtained or were denied a discharge in the bankruptcy case.
If you are facing the threat of prosecution due to your bankruptcy filings, it is crucial to seek legal representation from a bankruptcy fraud defense attorney in your jurisdiction.