Bankruptcy Fraud Defense Attorney
Bankruptcy is a broad concept. In simple terms, individuals and entities file for bankruptcy protection in order to establish an agreeable way with their creditors to pay accrued debts. There are several different types of bankruptcy companies or individuals can file –
- Chapter 7 Bankruptcy: Often referred to as “straight bankruptcy” and commonly used by individuals filing for bankruptcy (although corporations can also file for Chapter 7). Chapter 7 bankruptcy involves a liquidation of an individual’s or entity’s assets in order to pay creditors.
- Chapter 11 Bankruptcy: Chapter 11 bankruptcy proceedings are most often used by large corporations. Chapter 11 proceedings do not involve straight liquidation of assets, but rather a reorganization of an entity’s payment plan to creditors. By filing for Chapter 11 bankruptcy, entities are able to keep their operations going while negotiating a payment plan with its relevant creditors.
- Chapter 13 Bankruptcy: Chapter 13 bankruptcy is similar to Chapter 11, but it commonly used by individuals not companies. Under chapter 13 proceedings, individuals do not liquidate their assets, but work with their creditors to establish a payment plan in which to pay their owed debts.
Criminal Bankruptcy Fraud
Filing for bankruptcy is supposed to be a mechanism for individuals or companies to protect certain assets while establishing a re-payment plan or corporate restructure plan in order to lessen owed debts. Unfortunately, companies and individuals can perpetuate fraud in their bankruptcy filings and subject themselves to potential criminal and civil consequences. Criminal bankruptcy fraud cases are prosecuted at the Federal level under 18 U.S.C 157. Generally, under 18 U.S.C 157, if an individual or entity knowingly makes a false statement or conceals relevant information relating to a bankruptcy filing, these acts are considered bankruptcy fraud. If filing for bankruptcy, a company or individual must disclose all assets to the bankruptcy court. The most common form of bankruptcy fraud is when assets are concealed from the court in order to prevent their distribution to creditors. Individuals convicted of bankruptcy fraud can face a prison sentence of up to 5 years under the Federal statute. A bankruptcy court can also issue a fine of up to $250,000 per count of charged bankruptcy fraud.
Generally, individuals are investigated for bankruptcy fraud before being charged. Individuals who receive a request for documents, such as a Grand Jury Subpoena that requests documents surrounding the bankruptcy filing should be aware they are being looked at for potential violations of the bankruptcy fraud statute. A federal agent could also show up at your home requesting you speak with him or her about the alleged fraud. If you suspect you are under investigation for potential criminal bankruptcy fraud, it is critical you speak with an experienced federal defense attorney.
Civil Bankruptcy Fraud
Individuals and entities that commit bankruptcy fraud can also face civil penalties. As stated above, the goal of a successful bankruptcy filing is to essentially alleviate a company’s or individual’s debts to creditors. Once a bankruptcy proceeding in complete, creditors can no longer come after a company’s or individual’s debts and must abide by the court issued repayment plan or debt discharge. However, if fraud is committed during the bankruptcy proceeding, courts do not restrict a creditor from coming after assets and a creditor may civilly sue the company or individual who committed the fraud.
Recent Bankruptcy Fraud Cases Prosecuted by DOJ:
- A woman in Illinois was indicted for bankruptcy fraud. According to the indictment, the woman concealed a significant stream of her income from the bankruptcy court. The woman is alleged to have received almost $100,000 in workers compensation the month prior to her filing for bankruptcy. The bankruptcy petition filed by the woman did not disclose her workers compensation earnings. If convicted, the woman faces a potential prison sentence of five years and a fine of up to $250,000.
- A woman in New Jersey was sentenced to 15 months in prison for her role in a bankruptcy fraud scheme. According to sentencing documents, the woman filed for bankruptcy and at first, properly disclosed all of her assets. However, about a month after filing for bankruptcy, the woman was gifted ownership in valuable property. The woman did not update the bankruptcy court regarding the new property asset she acquired. The woman’s bankruptcy case proceeded under the guise that she had disclosed all of her significant assets. In addition to her prison sentence, the woman was also required to pay a $200,000 fine.
- A former Major League Baseball player was sentenced to spend 6 months in prison after being convicted of bankruptcy fraud. According to sentencing documents, the former MLB player stated he only had $50,000 in assets while having over $10,000,000 in liabilities on his bankruptcy petition. It was discovered that the MLB player actually had more than $8 million in cash that he tried to conceal from the bankruptcy court. In addition to his prison sentence, the MLB player had to pay a fine of $250,000.