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Last Updated on: 2nd August 2023, 11:34 pm
Bankruptcy fraud is a federal crime. Many people turn to bankruptcy to relieve them of unpaid debts. The common civilian can file either a chapter 7, which is a total liquidation, or they can file a chapter 13. A chapter 13 will allow them to retain their property and work out a payment plan with the court’s supervision. The laws regarding bankruptcy have changed over the past decade. No matter how many mandates that the court puts on the process, there are always those people who try to sidestep the law to get out of debt.
The court recognizes three types of bankruptcy fraud. They are concealing assets, filing multiple times, and petition mills. The first is self-explanatory. The most common type of fraud found in the bankruptcy court is not disclosing all income and or assets. Some people feel that if they leave off an asset they will be able to retain its possession. However, this category can also include things like transferring ownership of an asset to a friend or family member. To keep from losing an item, transferring it to another person is the oldest trick in the book. However, the court wants to know about any transfers within a specific period before the bankruptcy is filed. All it takes is one look into asset transfers to find the transaction.
Another commonly used scheme is to transfer money into offshore accounts to protect it from the United States Bankruptcy Courts. Since it is in the jurisdiction of another country, the US doesn’t have any control over it. Beware, this is a fraudulent way to handle money and keep it hidden from the courts. It is easy to see when large amounts of money disappear from a bank account that cannot be accounted for. The court is aware of such schemes. The trustee will often check and double check accounts to ensure they have been truthful with all disclosures.
Another commonly used trick is to file multiple petitions in various states. The goal is to avoid liquidation of assets, but submitting an incomplete list of assets in both state filings is also fraudulent. A person may only have one active bankruptcy petition at a time. Since a party can only file a chapter 7 once every eight years, and chapter 13 every five years, these rules extend across state borders. The act of filing two simultaneous petitions is fraud alone, not to mention selectively putting different information on the petitions. The bankruptcy court is a federal court and not a state matter. Though individual states handle things differently, in general, all proceedings are protected at a federal level.
Some people will also use different names to file the various petitions. This is specifically true of a woman who has been married and has a maiden name. She may try to file under the maiden name in one area and the married name in another. This sort of falsification is not tolerated within the court and is fraud.
The other two types of fraud are done by the petitioner with intent to scam the courts. A petition mill is a very different type of fraud. This type of bankruptcy petition is done by a third party. It often happens in poor communities or for those who are facing the eviction process. It starts with an ad being placed to help those who are in the process of being evicted. A firm will take all the debtor’s information. They charge significant fees to fight the eviction on their behalf. What they do is file for bankruptcy and ruin the person’s credit. They take what precious money a person has left.
Under the new laws, a means test must be taken. This test will determine disposable income. If a person has disposable income greater than $183.50 left over each month, they do not qualify for a chapter 7. They must file a debt reorganization plan under a chapter 13. Most people want a chapter 7 because it liquidates and forgives all debts. The repayment plan, under a chapter 13, lasts anywhere from three to five years. Regardless of which chapter is filed, bankruptcy stays on one’s credit for up to 10 years. Committing a federal crime, like bankruptcy fraud, can carry a sentence of up to five years in prison and a fine of $250,000. Additionally, restitution must be made to the court for any amounts fraudulently listed.
If you find yourself facing a fraud case of this type, you need a bankruptcy fraud attorney by your side. A simple oversight on your part may end up costing you big time. As NYC attorneys that specialize in this area of law, we want to help you settle this matter. When dealing with the federal courts, it’s no small matter. You need protection.
When you file for bankruptcy, you are expected to make a list of all of the assets and property that you own. If you do not submit this information, then you could be charged with bankruptcy fraud. Bankruptcy fraud is taken seriously.
When you file for bankruptcy, it frees you from the burden of having to pay debts. However, it is costly to your debtors. Bankruptcy law allows your creditors to recoup losses by collecting property. You can keep the assets that you need to maintain a household or job.
If you file for Chapter 7 bankruptcy, then the bankruptcy trustee can sell your property and distribute the funds among your creditors. Chapter 13 bankruptcy does not work like this. You will set up a payment plan for the next three to five years. The total payment will be equal to the value of your non-exempt property.
Most people are honest when they file for bankruptcy. They list all of the property and assets that they own. Here is a list of actions that can be considered fraudulent activities.
Many people commit fraud before the bankruptcy proceedings begin. Here is a list of ways people commit fraud before they file for bankruptcy.
Writing a bad check
Misrepresenting income or assets in order to obtain credit
Getting credit with no intention on paying it back
Buying a luxury item before filing for bankruptcy
Engaging in a deceptive business practice
As you mentioned, individuals accused of bankruptcy fraud can potentially make use of several defense strategies, which need to be tailored to the specifics of their case. The following defenses can be applied depending on the circumstances:
This defense may argue that the defendant was not intentionally deceptive when they hid assets or failed to report them. In some cases, they may be able to argue that their lawyer was unaware of the omitted information, or that they made a genuine mistake on their bankruptcy forms.
The accused may argue that there was a legitimate purpose behind concealing their assets. As you mentioned, they could possibly be trying to capitalize on tax benefits or other legitimate reasons.
In some cases, the government may lose the right to prosecute if too much time has passed since the alleged fraud took place. The Statute of Limitations for bankruptcy fraud is generally five years.
If the defendant corrected their paperwork upon discovering their mistake, this could serve as a defense against charges of fraud.
Legal advice is paramount when faced with allegations of bankruptcy fraud due to the potential penalties. It can include up to 20 years in federal prison, restitution payments, and community service. A knowledgeable Bankruptcy Fraud Lawyer can advise about the rights of the accused and guide them on the best defense strategies.
As you aptly described, while both a bankruptcy lawyer and a bankruptcy fraud lawyer deal with bankruptcy issues, their roles are different. A bankruptcy lawyer helps individuals navigate the bankruptcy filing process, while a bankruptcy fraud lawyer defends individuals who have been accused of bankruptcy fraud.
When an investigation into potential bankruptcy fraud is launched, the accused often becomes aware of it, as it usually involves court proceedings. Both the Federal Bureau of Investigation (FBI) and the Internal Revenue Service (IRS) can investigate allegations of bankruptcy fraud.
It is crucial for the accused to consult with a lawyer before interacting with law enforcement agencies to avoid any unintentional self-incrimination.
Bankruptcy fraud is indeed a federal offense, with 18 USC 152 being one of the most common charges. The crime involves a scheme to defraud the courts through false bankruptcy petitions.
Fraudulent concealment occurs when someone falsely claims that they don’t have the funds to cover their debts during a bankruptcy filing. Those who aid or abet such an individual can also be charged.
The maximum sentence for bankruptcy fraud, when not combined with other crimes like mail or wire fraud, is five years. However, if other crimes are involved, the penalty can escalate up to 20 years.
Bankruptcy fraud charges can also lead to civil lawsuits from creditors, which can result in further penalties.
Corporations, too, can be charged with bankruptcy fraud based on the actions of their representatives. Lack of knowledge about fraudulent activities of an employee does not provide a defense in court.
Regardless of the nature of the charge, anyone facing allegations of bankruptcy fraud should promptly consult with a skilled attorney who can provide a robust defense against these charges.
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