The Basics of Bankruptcy
To understand what constitutes bankruptcy fraud, you need a grasp for the types of bankruptcy. Most consumers file either Chapter 7 or Chapter 13. The former type of case involves, at least theoretically, a liquidation of assets. If you can protect through exemptions all of your assets from sale by a Chapter 7 trustee, then a Chapter 7 accomplishes the discharge without you losing any property. This makes Chapter 7 a generally preferred method for those with “no asset” cases.
The use of Chapter 7 requires that you pass a “means test.” In general terms, your monthly income cannot exceed a certain level set by the bankruptcy law. You qualify under one part of the means test if your annual gross income is below the median for New Jersey. Should your income go above this median, you can still pass the means test by taking into account deductions from income. If your income rises above a particular level, even with the deductions, you are required to file for Chapter 13. Such bankruptcy cases require you to pay a certain amount of your “disposable income” over a three or five-year period.
Businesses generally get bankruptcy relief under Chapter 11. In these cases, a business proposes a repayment plan to its creditors and is able to remain in business.
Acts of Bankruptcy Fraud
Commonly, debtors commit bankruptcy fraud by lying on the petition, schedules or statements submitted in a bankruptcy filing. You sign these documents under oath, so that false statements constitute perjury. Specifically, the papers you file in a bankruptcy case ask questions such as:
*Whether you filed bankruptcy in the last eight years
*The identity, location and estimated value of your land, vehicles, furniture, tools, jewelry, bank accounts and other property
*Transfers of property and money, especially to family members, relatives or owners, officers or directors of companies
*Monthly income and expenses
Intentional misrepresentations on bankruptcy schedules constitute fraud because the offending debtors seek the protection of Chapter 7 when they are not eligible or in order to keep assets from the reach of bankruptcy trustees who might use those assets to pay creditors. Chapter 13 debtors may be charged with fraud for underreporting or hiding income to have a lower plan payment and deprive the Chapter 13 trustee of that income.
Perhaps in conjunction with false statements, debtors face bankruptcy fraud charges for hiding assets. The artifices may include transfers to shell or otherwise phony entities or individuals or to family members. Debtors also commit fraud by filing in multiple jurisdictions under false identities or with other false information.
Evidence in Bankruptcy Fraud Cases
As with many white-collar crimes, bankruptcy fraud involves financial documents that may uncover fraudulent practices. Proof of fraud may come when a debtor reports, say, less income in a bankruptcy filing than in a mortgage application. The debtor inflates income to a lender to qualify for a mortgage, but suppresses it to avoid Chapter 13 payments. A check of mortgage applications, W-2 forms, other income statements and tax returns can reveal inconsistencies and evidence of fraud.
Prosecutors may scroll down your Facebook or other social media posts to find statements and images of your vacations, home furnishings, jewelry, new vehicles or other property which are at odds with your schedule of assets. The bankruptcy trustee may look for inconsistencies lurking in your filings and perform further investigation that might reveal hidden assets or income.
Defending a Bankruptcy Fraud Prosecution
As with fraud in general, bankruptcy fraud has at its heart the perpetrator’s intent to make false statements and deceive. A NJ Bankruptcy Fraud defense attorney attempts to negate the prosecution’s claim that you intended to lie on your bankruptcy forms. You might show that you were confused, misunderstood a question, not known or forgotten about some inheritance from a distant relative or made errors in calculating your average income or expenses. In particular, it helps your defense if you informed the trustee of your mistake and corrected it as soon as you realized it.
Another defense rests in the passage of time. As a general rule, the statute of limitations on federal criminal prosecutions is five years from the date of the offense. If you’re charged with concealment of assets, the five-year deadline starts from the date you obtained or were denied a discharge in the bankruptcy case.
Contact a NJ Bankruptcy Fraud defense attorney if you face the threat of prosecution because of your bankruptcy filings.