What Happens When You Commit Bankruptcy Fraud?
- Nearly 70 percent of bankruptcy fraud involves concealing assets,which represents the most common form, according to the Cornell Law School's Legal Information Institute. Debtors must identify all debts and properties on bankruptcy petitions. To keep assets out of creditors' hands, businesses or individuals may transfer them to associates, friends and relatives, according to the institute's overview. Leaving this type of fraud unchecked raises the costs and risks of lending money, which are passed on to lawful borrowers.
- Bankruptcy fraud takes many guises. Petitioners will file false or misleading information, sometimes using multiple names in several states. In extreme cases, debtors may try to bribe the court-appointed trustee handling their case, according to the institute. Bankruptcy fraud often merges with other crimes, such as identity theft and mortgage fraud. As of 2010, offenders served average prison terms of 31 months, according to the Internal Revenue Service, which coordinates its enforcement efforts with the U.S.Justice Department.
- Federal prosecutors can bring criminal charges under Section 18 of the U.S. Bankruptcy Code if they can show that a debtor knowingly and fraudulently misrepresented a material fact. Maximum penalties include five-year prison terms and fines of up to $250,000. The consequences may not end there, as former pro footballer Clyde "Peter" Hall learned in October 2010. Besides a 20-year prison term, Hall also was ordered to forfeit $4.275 million and pay over $1.9 million in restitution for various fraud schemes.
- Revocation of a discharge in U.S.Bankruptcy Court is another outcome. Creditors or the U.S. Trustee can petition to revoke discharges if they were obtained fraudulently or the debtor failed to explain misinformation uncovered during an audit, according to the court. Failing to disclose the acquisition of property is also grounds for revoking a discharge. Under the American Bar Association's ethics code, attorneys who uncover such behavior must inform the court The attorney may then withdraw.
