When private individuals are experiencing crushing debt, they have the opportunity to file Chapter 7 and Chapter 13 bankruptcies, which allow them to have the debt relief they so desperately need. With a Chapter 7 for example, low income debtors can literally wipe out or erase many types of debts, specifically unsecured debts like credit card debt, medical bills, past-due utility bills and personal loans.
For the debtors with regular incomes who earn too much to qualify for a Chapter 7, they can file a Chapter 13 bankruptcy instead. Under this chapter, debtors can pay all or a portion of their debts over a 3 to 5-year time period, and in monthly payments that they can actually manage. While bankruptcy can offer a huge relief for honest debtors who ran into a series of unfortunate events or just bad luck, unfortunately the process can be abused. And when someone abuses the bankruptcy process, it’s called bankruptcy fraud.
Spotlight on Bankruptcy Crimes
“How does someone commit bankruptcy fraud?” you might ask. Often, it has to do with concealing an asset. This can include withholding information, failing to disclose an asset on the bankruptcy paperwork, or falsifying or destroying a document. For the prosecutor to prove bankruptcy fraud, he or she must show that the defendant knew what he or she was doing and that they had fraudulent intent. Examples of bankruptcy fraud:
- Withholding important documents,
- Knowingly writing a bad check before filing for bankruptcy,
- Using credit cards to purchase items with no intention of paying them back because of plans to file bankruptcy,
- Taking out substantial cash advances in anticipation of filing bankruptcy,
- Failing to include an asset on the bankruptcy paperwork,
- Concealing a property transfer that took place before the bankruptcy was filed,
- Giving the bankruptcy trustee a false document,
- Destroying documents needed for the bankruptcy,
- Lying on the bankruptcy paperwork, and
- Making a false statement during the 341 Meeting of Creditors.
When debtors engage in any one or more of the above prohibited behaviors during the bankruptcy process, they commit bankruptcy fraud, which is punishable by fines up to $250,000 and up to 20 years in federal prison.
Exempt & Non-Exempt Assets
Whether debtors file a Chapter 7 or Chapter 13 bankruptcy, the goal is to help them experience relief – relief from creditors and debt looming over their heads. Since creditors take the brunt of these losses, the bankruptcy laws were set up in such a way as to help certain creditors receive at least some compensation by letting them take a portion of the debtor’s property. Debtors get to keep the assets needed to maintain their household; these are called “exempt assets.”
Non-exempt assets on the other hand, are considered a part of the bankruptcy estate and can be liquidated to pay back creditors’ claims. In a Chapter 7 case for example, the bankruptcy trustee will liquidate a debtor’s non-exempt assets and use the proceeds to pay back creditors. Chapter 13 cases are handled differently. With a Chapter 13, the debtor pays off all or a portion of their debts over 3 to 5 years. Through the repayment plan, the creditors receive a share of the debtor’s disposable income in exchange for wiping out their debt.
Committing Bankruptcy Fraud
Most people who file for bankruptcy are honest and have good intentions, but there will always be exceptions. Occasionally, a debtor will try to hide or transfer assets from the bankruptcy court. When this happens, it’s called bankruptcy fraud. Here are examples of bankruptcy fraud:
- Failing to include an asset on the bankruptcy schedules.
- Hiding the fact that property was transferred to a friend or family member before the bankruptcy.
- Providing the bankruptcy court with false documents.
- Withholding documents from the bankruptcy court.
- Destroying documents that should be disclosed to the bankruptcy court.
- At the 341 Meeting of the Creditors, intentionally making a false statement in the bankruptcy paperwork or blatantly lying to the bankruptcy trustee.
- Having someone help you hide property from the bankruptcy court.
Bankruptcy fraud is a federal crime under 18 U.S.C. Section 157, punishable by a fine and imprisonment. If you’re accused of bankruptcy fraud or any other federal crime, contact our firm to meet with a Plano criminal defense lawyer. Related: What is Document & Benefit Fraud?