Criminal Defense Lawyers

When Does Bankruptcy Fraud Become a Federal Crime in California?

Filing for bankruptcy can provide much-needed relief if you’re struggling with overwhelming debts. But engaging in fraud or deception during the bankruptcy process can lead to serious federal criminal charges.

Most mistakes or omissions on bankruptcy paperwork are just innocent errors. But intentionally lying or concealing assets is bankruptcy fraud under federal law. This article will explain when bankruptcy fraud crosses the line into a federal crime in California.

What is Bankruptcy Fraud?

Bankruptcy fraud involves dishonesty intended to mislead the bankruptcy court or your creditors. Under 18 U.S.C. § 157, it’s a federal crime to:

• Knowingly make a false declaration, certificate, verification, or statement in relation to a bankruptcy case
• Knowingly use a false claim in a bankruptcy case
• Knowingly make a false accounting in relation to a bankruptcy case
• Knowingly withhold recorded information, including books, documents, records, and papers, relating to the property or financial affairs of a debtor from the court

Bankruptcy fraud also includes concealing assets, destroying records, lying on paperwork, misrepresenting information, and other deceptive acts.

Most Common Bankruptcy Fraud Schemes

Some of the most common bankruptcy fraud schemes prosecuted in California include:

• Hiding assets – Not disclosing all your property so you can keep assets that should go to creditors.
• Making false statements – Lying on your bankruptcy petition, schedules, or other documents.
• Multiple filings – Filing for bankruptcy in different courts using false information.
• Bust-out schemes – Racking up debt with no intention of repayment, then filing bankruptcy.

When Bankruptcy Fraud Becomes Criminal

Not all bankruptcy fraud is criminal. Minor mistakes usually don’t rise to the level of criminal charges. But federal prosecutors focus on cases where:

• There was clear criminal intent – You meant to mislead or deceive.
• The fraud was significant – Large dollar amounts or many creditors affected.
• There was sophistication – Complex schemes or repeat offenders.
• There was harm – Creditors lost substantial money.

Factors like these can turn civil bankruptcy fraud into a federal crime in California.

Criminal Intent

Criminal charges require prosecutors to prove you acted with intent and knowledge. An innocent mistake on paperwork usually won’t meet this burden. But intentionally omitting material facts or knowingly making false statements likely shows criminal intent.

For example, “forgetting” to list your vacation home shows more intent than accidentally leaving a small bank account off your schedules.

Large-Scale Fraud

The size and scope of the fraud is also key. Fraud involving relatively small dollar amounts against just one or two creditors is less likely to be charged as a crime.

But large frauds against multiple victims are more likely to provoke federal charges. For example, hiding millions in assets from dozens of creditors indicates a serious federal crime.

Sophisticated Schemes

Elaborate fraud schemes show criminal intent. Simple paperwork errors typically don’t. But using forged documents, fake identities, multiple filings in different courts, and shell corporations all point to criminal conduct.

Also, repeat offenders who serially abuse the system often face criminal prosecution, even if each bankruptcy standing alone may not have risen to a criminal level.

Creditor Harm

Prosecutors also look at how much the fraud harmed creditors. High creditor losses mean the fraud was more serious. Low losses may still get you civil penalties but are less likely to result in criminal charges.

Common Bankruptcy Crimes

While most bankruptcy crimes fall under 18 U.S.C. § 157, prosecutors can also charge other related federal offenses like:

• Perjury – Lying under oath on your bankruptcy paperwork.
• Mail/Wire Fraud – Using mail or wires to execute a scheme to defraud.
• Money laundering – Disguising proceeds of bankruptcy fraud.
• Tax evasion – Not reporting income hidden from bankruptcy court.
• Identity theft – Using someone else’s identity to commit bankruptcy fraud.

These charges can each add years to your potential prison sentence.

Penalties for Criminal Bankruptcy Fraud

Under federal law, bankruptcy fraud carries:

• Up to 5 years in federal prison
• Fines up to $250,000
• Possible restitution to victims
• Up to 3 years supervised release after prison

Other related charges like perjury or money laundering can add more potential prison time. Your sentence depends on the scale of your fraud and your criminal history.

Defending Against Criminal Charges

Proving intent is key to any bankruptcy fraud prosecution. The most viable defense is often that you did not act with criminal knowledge or intent.

For example, you may have made an honest mistake or lacked understanding of complex bankruptcy rules. Or a spouse or financial advisor told you to omit certain assets or information without explaining why.

An experienced criminal defense lawyer can evaluate whether you had any legitimate defenses to criminal intent. This could get serious bankruptcy fraud charges reduced or dismissed.

Consult a Lawyer About Your Bankruptcy Fraud

Allegations of bankruptcy fraud in California should always be taken seriously. Only an attorney can advise you whether your case rises to the level of criminal charges.

A knowledgeable lawyer can review the evidence and applicable law and guide you through the criminal process. Don’t wait to get experienced legal help.