Bankruptcy Fraud Statute

Federal bankruptcy laws are designed to help people who are overwhelmed by debt. If you cannot repay your debts, these laws allow you to start fresh, wiping out most of your debts through the different bankruptcy chapters. However, rules are in place to ensure that the process is fair and that everyone plays by the rules.

Bankruptcy Fraud Explained

You could get into serious trouble if you try to take advantage of these laws unfairly and commit bankruptcy fraud. This is where the federal law against bankruptcy fraud comes in. It’s a crime, and it involves two main things:

Making False Statements

This means lying or giving false information when filing for bankruptcy. For example, if you exaggerate your debts or downplay your assets to make it look like you’re in worse financial shape than you are, that’s a false statement.

Concealing or Transferring Assets

Trying to hide or move your assets to keep them away from your creditors (the people you owe money to) during the bankruptcy process is also considered fraud.  The bankruptcy rules allow the Trustee to go back two years in some cases to undo fraudulent transfers, and based on the state you reside in, it can be an even longer look-back period.  For instance, the Trustee can look back six years to undo a fraudulent property transfer in Michigan.

For instance, transferring your valuable possessions to a friend or family member to avoid having to sell them to pay your debts is a big no-no.

The whole point of bankruptcy is to give honest debtors a fresh start while ensuring creditors get a fair share of what’s owed. So, federal bankruptcy statutes and fraud laws exist to keep people honest and ensure the process is fair for everyone involved.

If you’re caught committing bankruptcy fraud, it’s a federal crime, and you could end up in serious trouble. You might face fines or even go to jail.

Federal criminal cases are complex, so if you ever find yourself in such a situation, it’s crucial to have a skilled federal criminal defense lawyer to help navigate the legal process and work toward the best possible outcome.

Unlawful Actions in A Bankruptcy Proceeding

US law describes different actions that are considered illegal when it comes to handling someone’s property and finances in a bankruptcy case. Let’s go through each of these actions one by one:

Concealing Property

If someone intentionally and dishonestly hides or keeps property that belongs to a person going through a bankruptcy court process, they are breaking the law. This applies to anyone managing or caring for that property, like a court officer, trustee, or marshal.

False or Fraudulent Representation

If a person knowingly and dishonestly lies or gives false information during a bankruptcy case, either in writing or verbally, they are committing a crime. This includes making false financial statements hiding assets or accounts related to the bankruptcy.

If someone intentionally and dishonestly makes false written statements under oath (where they promise to tell the truth under penalty of perjury) concerning a bankruptcy case, they are breaking the law. This includes written, false oaths and statements made under penalty of perjury.

If a person knowingly and fraudulently submits a fake claim for money from someone’s bankruptcy case or uses such a claim inappropriately, they are committing a crime. This applies whether they do it themselves in such a scheme or through an agent, like a lawyer.

Receiving Property After Bankruptcy

If someone receives a significant amount of property from a person going through bankruptcy, knowing that it’s meant to be part of the bankruptcy case and is trying to prevent it from being used to pay off debts, that’s illegal.

Bribery

If someone offers, receives, or tries to get money, property, or some other benefit in exchange for doing something in bankruptcy proceedings or not doing something related to a bankruptcy case, that’s bribery and against the law.

Transferring or Hiding Property

If a person, either on their own or as an agent of someone else, intentionally and dishonestly transfers or hides property before or during a bankruptcy case to avoid the rules of the bankruptcy law, it’s illegal.

Tampering with Records

If someone intentionally and dishonestly messes with or destroys any official records or documents related to a person’s property or financial matters during or after a bankruptcy case, they’re breaking the law.

Withholding Information

If, after a bankruptcy case has started, someone intentionally and dishonestly keeps essential records and information away from the people who are supposed to have access to them, they’re doing something illegal.

The penalties for these actions can be severe. If caught and convicted, a person could be fined or even sent to prison for up to 5 years, or sometimes both, depending on the circumstances. These laws are in place to ensure that everyone plays fair and honestly in the whole bankruptcy filing process and doesn’t try to take advantage of it unlawfully.

Penalties for Federal Bankruptcy Fraud

The penalties for Section 157 bankruptcy fraud can vary depending on several factors, including the offense’s specific circumstances and the sentencing court’s discretion. Here are some key points to consider:

1. Nature and Severity of the Offense: The seriousness of the fraud committed can influence the penalties. If the fraud is extensive and significantly impacts creditors or the bankruptcy process, it may lead to more severe penalties.
2. United States Sentencing Guidelines: Federal sentencing guidelines provide a framework for judges to determine the appropriate punishment. These guidelines consider various factors, including the nature of the offense, the defendant’s role, and any enhancements or mitigating characteristics.
3. Defendant’s History and Character: The defendant’s criminal history and character can also impact the sentencing decision. Prior criminal convictions or a history of false or fraudulent representations or behavior may result in harsher penalties.
4. Policy Considerations: The sentencing court considers the policy objectives outlined in 18 U.S.C. § 3553(a), which include factors such as the need for deterrence, protection of the public, and the defendant’s rehabilitation.

Generally, bankruptcy fraud under Section 157 is classified as a felony offense. The potential penalties for this offense typically include:

– Up to 5 years in federal prison.

– A fine of up to $250,000.

It’s important to note that these are the maximum penalties, and the actual sentence imposed can vary widely based on the factors mentioned earlier. Federal judges can impose sentences below these maximums, considering factors such as cooperation with authorities or other mitigating circumstances.

Ultimately, the severity of the penalties will depend on the case’s specific details and how the court interprets and applies the relevant laws and guidelines. If you’re facing charges related to bankruptcy fraud, it’s crucial to consult with an experienced criminal defense attorney who can provide guidance and legal representation tailored to your situation.

A Famous Bankruptcy Fraud Case

In 2016, during his bankruptcy proceedings, rapper 50 Cent faced scrutiny over Instagram photos he posted. These images depicted him lounging beside counterfeit stacks of hundred-dollar bills spelling “BROKE.”

While 50 Cent viewed these posts as humorous self-expression, the U.S. Trustee’s Office saw them as disrespectful to the bankruptcy process and possible evidence of concealing assets from creditors. They raised concerns about the accuracy of his financial disclosures, given the disparities between his initial filings and later revisions.

In response, 50 Cent, whose real name is Curtis James Jackson III, argued that the money in the photos was prop currency from a film set. He maintained that these posts were part of his branding strategy in the face of a high-profile bankruptcy.

Although he avoided sanctions from the bankruptcy judge for his social media antics, this incident underscored the importance of transparency and credibility in the bankruptcy process as he sought approval for his proposed financial reorganization plan.

Defenses for Federal Bankruptcy Fraud Charges

Defending against charges under 18 U.S.C. 157, which pertains to bankruptcy fraud, typically revolves around challenging the element of intent to defraud.

Successfully addressing bankruptcy fraud charges demands legal expertise and a thorough understanding of the intricacies involved. Engaging a seasoned bankruptcy attorney is advisable and pivotal to securing the best possible outcome for your case.

Here are some defenses that may be employed in such cases:

Jury Trial: If necessary, your defense may be prepared to take the case to a jury trial to challenge the prosecution’s evidence and argue that the intent to defraud cannot be proven beyond a reasonable doubt.

Negotiation and Pretrial Settlement: Your attorney may explore negotiating with the prosecutor to reach a pretrial settlement involving reduced charges or penalties. This can be an effective strategy to achieve a more favorable outcome without going to trial.

Unintentional Errors: Another defense might involve demonstrating that any inaccuracies or omissions in your bankruptcy paperwork were unintentional errors. These errors could include failing to disclose certain assets or liabilities due to oversight, lack of awareness, or need for clarity about the requirements.

Lack of Fraudulent Intent: The critical element in a bankruptcy fraud case is proving that you intended to defraud creditors. Your defense may argue that there was no intent to deceive creditors or the court during the bankruptcy filing. Instead, any inaccuracies in the paperwork resulted from oversight or misunderstanding rather than a deliberate attempt to commit fraud.

Incomplete Disclosure: In some cases, you might not have intentionally concealed information but failed to include certain assets or financial details due to a genuine belief that they were irrelevant to the bankruptcy proceedings. Your defense could argue that you did not knowingly and willfully hide assets.

Statute of Limitations: It’s essential to be aware that bankruptcy fraud charges have a statute of limitations of five years. Suppose the alleged fraudulent activities occurred more than five years before the charges were filed. In that case, your federal criminal defense lawyer may argue that the case should be dismissed based on the statute of limitations.

In conclusion, bankruptcy fraud is a serious offense with potentially severe penalties, including fines and imprisonment. The bankruptcy process is designed to relieve honest debtors while ensuring creditors receive their fair share. When faced with bankruptcy fraud charges, mounting a strong defense is crucial.