While the powerful relief afforded by bankruptcy frees you from overwhelming debt, it comes at a cost to your creditors. Bankruptcy law attempts to mitigate this loss by giving your creditors a share of your nonessential assets in exchange for wiping out your debt. You’ll disclose all property you currently own (and asset transfers) and keep the things you can exempt—generally property needed to maintain a job and home.
Here’s what will happen to the rest.
Remember that your creditors are entitled to receive certain property or payments—it’s part of the deal. Hiding assets, knowingly omitting required information on bankruptcy paperwork, or inappropriately using the bankruptcy process to a creditor’s detriment could be considered bankruptcy fraud.
Fraud doesn’t always play out within the bankruptcy itself—it can occur before the bankruptcy filing. This problem often arises when someone tries to erase a prior bad act using bankruptcy. Here are examples of fraudulent behavior that might cause a creditor to ask the court to deny your discharge of a particular debt (you’ll still owe it after the case ends):
Be aware that the bankruptcy trustee will often work closely with a creditor or interested party when that person is making a fraud claim. For instance, if a creditor asks uncomfortable and probing questions 341 meeting, the trustee will likely continue the meeting to allow the creditor more time. Why would the trustee want to get involved? Because dishonest debtors hide assets, and the more assets the trustee finds, the more the bankruptcy trustee gets paid.
Learn more by reading When the Bankruptcy Trustee Suspects Fraud.
Most people who file for bankruptcy are honest and transparently report all assets. Still, it’s not always the case—and succumbing to the temptation to hide property can result in a bankruptcy fraud accusation. Here are examples of actions that, if intentional, would likely be problematic:
You’ll only run into trouble if it’s believed that you knowingly and intentionally committed a fraudulent act. Why? Because bankruptcy fraud doesn’t happen by accident or mistake. For instance, accidentally forgetting to list an asset or incorrectly stating your income or expenses probably wouldn't rise to the level of fraud. However, if you failed to list your vacation home in your bankruptcy paperwork, hoping that the trustee wouldn’t find out about it, it’s likely you’ve knowingly and intentionally done the following: hidden an asset, filed a false form, and committed perjury.
Not all fraud is the same. The severity of the consequences for civil versus criminal fraud differs substantially. Learn more about the differences between these two types of bankruptcy fraud.
Civil cases usually arise when a creditor files a lawsuit (adversary proceeding) alleging wrongdoing involving one particular debt (see “Fraud That Starts Before Bankruptcy” above for a list of examples of common allegations). If the creditor proves its case, the filer will face a variety of consequences. For instance, the court can do one or more of the following:
Learn about presumptive fraud in bankruptcy—a trap that’s not only easy to fall into but easy for a creditor to prove. Also, find out what happens when the bankruptcy trustee suspects fraud.
A significant scheme to deprive multiple creditors would be more likely to rise to the level of criminal bankruptcy fraud. Under federal law, cases of criminal fraud are investigated by the Federal Bureau of Investigation (F.B.I.) and aggressively prosecuted by the U.S. Department of Justice (D.O.J.). Although the bulk of the crimes apply to debtor activities (the person who files the case), creditors, bankruptcy trustees, court personnel, and third parties can also be convicted of bankruptcy crimes.
Also, many types of dishonesty are often involved in criminal bankruptcy fraud, some of which are also crimes. You’ll find most bankruptcy crimes in federal criminal statutes. (18 U.S.C. §§ 152, 157.) Here are some examples.
Along with bankruptcy fraud, federal prosecutors often add counts for other federal crimes. For instance, the D.O.J. might prosecute someone for perjury who fails to list an asset on bankruptcy schedules. Also, prosecutions often include tax fraud, wire fraud, mail fraud, money laundering, bank fraud, identity theft, or conspiracy, each of which brings separate penalties.
The consequences of engaging in criminal bankruptcy fraud can be harsh. Anyone who makes a knowingly false statement in association with a bankruptcy filing can be assessed fines up to $250,000 and receive up to 20 years in prison. If you’re looking for information about penalties associated with bankruptcy fraud—such as jail time, fines, and more—go to Bankruptcy Fraud Consequences and Penalties.
Rest assured that it’s unlikely for a debtor to face fraud allegations without warning. Most filers are fully aware of their past actions and know to expect a possible fraud accusation. If this is a concern, consult with a knowledgeable bankruptcy attorney.
Other individuals considering filing for bankruptcy can take steps to avoid fraud allegations by transparently disclosing financial information. For instance, a debtor should be prepared to list all income, property, creditors (even if the intention is to repay a particular creditor after the bankruptcy), and prior transactions (such as property sales, donations, and gifts). You can learn what you’ll disclose by reviewing the official bankruptcy paperwork.
]]>Counterfeiting is a form of trademark infringement. It’s the act of making or selling lookalike goods or services bearing fake trademarks. For example, a business deliberately duplicating the Adidas trademark on shoes is guilty of counterfeiting.
The standard of trademark infringement–likelihood that consumers will be confused–is self-evident in counterfeiting: The counterfeiter’s primary purpose is to confuse or dupe consumers.
Counterfeiting isn’t limited to consumer products like watches and handbags. For example, a website that copied the Playboy Bunny logo for adult sex subscription services was assessed $10,000 for trademark counterfeiting. (Playboy Enterprises Inc. v. Universal Tel-A-Talk Inc., 1999 WL 285883 (E.D. Pa. 1999).)
It’s still counterfeiting even when the people buying and selling the merchandise are aware that it isn’t from the real source–for instance, that the clothing isn’t made by Calvin Klein. That’s because even when a buyer knows that the product is a fake, the product can still be used to deceive others.
The term “knockoff” is often used as a substitute for “counterfeit.” But the terms aren’t exactly synonymous. Some knockoffs might imitate an established product without infringing. That could be the case because the underlying work—a dress, for example—cannot be protected under the law, meaning that a knockoff doesn’t violate any legal rules.
The marketplace is littered with millions of counterfeits relating to brands like Gucci, Louis Vuitton, and Dolce & Gabbana. The Zippo lighter has been the target of massive counterfeiting—depending on where you are in the world, the percentage of fake Zippos can be between 5% and 50%. The ripoffs eventually cut into sales, generally causing revenues to drop by 25% and forcing the company to lay off 15% of its employees.
Let’s go back to our opening questions. The short answer is that selling counterfeit goods is a bad idea for a business. There are three big problems:
(1) If the trademark owner chases you, you can quickly lose all of your business investments and assets (all your fake Gucci bags) and much more (you may be pursued for your personal property and home).
(2) There’s no predictability to your business because your success is tied to not being discovered by the trademark owner.
(3) You’ll need an illegal connection to obtain or import these products.
Most illegal distributors are caught as a result of online sales (for example, eBay has powerful anti-counterfeiting rules and will banish violators), or because someone (sometimes a disgruntled customer or competitor) reports them. Trademark owners will pursue you, and if they find you, they will seek to make an example of you. In other words, it’s a little like cheating on your taxes. You might get away with it for a while, but when you’re discovered, very bad things are likely to happen.
Proving trademark infringement is easier when dealing with counterfeits because there is usually no need to conduct a factor-by-factor analysis of likelihood of confusion. Courts have said that, by their very nature, counterfeit goods cause confusion. (Gucci Am., Inc. v. Duty Free Apparel, Ltd., 286 F. Supp. 2d 284 (S.D.N.Y. 2003).)
The remedies for trademark counterfeiting under the Lanham Act are much harsher than for traditional trademark infringement. Unless a court finds some mitigating circumstances, intentionally using a counterfeit mark (and related behavior) may lead to an award of three times the profits or damages (whichever is greater), plus reasonable attorney’s fees. (The counterfeiter must have duplicated the trademark on the kind of goods or services for which the trademark was federally registered. That means that, for example, it’s not counterfeiting to put the Gucci mark on automobile seat covers, as these are not goods for which Gucci has a registered trademark.)
A mere offer to sell counterfeit products can also trigger counterfeiting liability. For example, an individual offered to sell counterfeit jeans and provided a sample to an undercover police officer. Proof of actual production or sale of the jeans wasn’t necessary to prove counterfeiting.
Similarly, an Internet Service Provider (ISP) that hosted several websites selling fake Louis Vuitton merchandise could be liable for contributory infringement. The district court likened the ISP in this case to a proprietor of the flea market found liable for contributory infringement. (Louis Vuitton Malletier v. Akanoc Solutions, 591 F.Supp.2d 1098 (N.D. Cal. 2008)).
If you get a cease-and-desist letter, the following scenarios are possible:
Note that the Catch Me If You Can scenario isn't very likely at all. If you continue to sell without either fighting the letter or otherwise responding, the lawyer will most likely pursue you.
Converting your business to an LLC or corporation can establish limited liability and will shield you from personal liability in some instances, meaning that the lawyers can only go after your business assets. But your liability is likely to be tied to your status at the time of the infringement. So, if you were a sole proprietor when you got a cease-and-desist letter, then you're probably going to be treated that way (personally liable) in court, even if you later convert to an LLC or a corporation. In addition, keep in mind that the LLC/corporate “shield” also won't protect you if you:
If you get a cease-and-desist letter, you need to determine whether the lawyers are right—that is, whether whatever you sell infringes. If yes, you should abandon the infringing items. If you're not infringing, you should consider whether you want to fight or move on. If you fight, you may be able to have some luck fighting takedown notices, but keep in mind that if you're dragged into court, you'll be hit hard in your bankroll, and the only guaranteed winners will be the lawyers.
]]>Another common scenario occurs where a check recipient agrees to accept a postdated check in exchange for goods or services, even though the maker of the check has informed the recipient that the checking account will not contain adequate funds to cover the check until the date used on the check. Upon receiving a postdated check, the recipient (such as a merchant or wholesaler) will provide the goods or services. But, what if the recipient attempts to cash the postdated check at the future date, but the check bounces? Has a crime been committed?
A person writing a postdated check may violate the law if the check is returned by the bank to the recipient because the maker’s account does not have the funds on deposit necessary to cover the check. Although worthless check laws can vary somewhat from one state to another, all states make it illegal for a person to write a worthless check with the intent to defraud a person or business of goods or services. The maker of the postdated check must have the intent to defraud at the time of writing the postdated check. Therefore, a defendant who writes a postdated check that is returned because of insufficient funds will not be convicted of writing a worthless check unless the prosecutor is able to prove that the defendant wrote the postdated check with the purpose of defrauding the recipient or with the knowledge that the check would not be honored at the later date used on the check.
(“Postdated Checks: An Old Problem with a New Solution in the Revised U.C.C.,” 14 U. Ark. Little Rock L.J. 37;Young v. State, Ga. App. 425 (2004)).
How can a prosecutor win a guilty verdict if the prosecutor must prove that the defendant had the intent to defraud the recipient of the postdated check? In some cases, direct evidence may exist that proves that the defendant wrote the postdated check with the intent to cheat the recipient out of goods or services. For example, at trial, a witness might recount a defendant’s statement made to the witness admitting that the defendant wrote the victim a worthless check in order to get the victim to provide the defendant something of value. In such cases, the defendant’s admission, if believed, would provide the required proof of the defendant’s criminal intent to defraud the victim with a postdated check.
What about cases involving postdated checks where direct evidence of the defendant’s knowledge or intent to defraud does not exist? Typical worthless check laws are written so that the criminal intent requirement necessary for a conviction is satisfied if the prosecutor proves the existence of one or more conditions or facts specified by the statute. For example, under Georgia’s deposit account fraud statute, the defendant is presumed to have written the check with the knowledge it would bounce if:
The fact that a postdated check is not honored because of insufficient funds does not, by itself, establish that the maker of the check committed a crime; the prosecutor must prove that the defendant had the intent to defraud at the time of writing the worthless check. Under Georgia law, proof of any of the above-listed conditions will satisfy the intent element of the crime that is necessary for a conviction.
Other states have laws that similarly allow a judge or jury to presume that the defendant had the intent to defraud with a worthless check if certain facts are proven. For example, Maine law allows the presumption of the intent to defraud with a bad check where the writer of the check fails to make good on the bad check within five days of receiving notice that the check bounced; the same statute also presumes intent where the defendant does not have an account with the bank that the check is drawn on at the time the defendant writes the check.
(Ga. Code § 16-9-20; Me. Rev. Stat. 17-A-708).
Punishment for committing check fraud, including fraud committed with a postdated check, can vary from state to state, but the laws typically authorize fines, probation, and even imprisonment. A defendant also will have to make restitution to the victim for goods or services received with the bad check.
In many states, the severity of the crime is determined by the dollar amount of the worthless check or checks. For example, in Colorado, a conviction for writing a bad check for $500 or less (or two or more bad checks within a 60-day period that total less than $500) is punished as a Class 2 misdemeanor, a single check for (or two or more bad checks written totaling) $500 or more but less than $1,000 is considered a Class 1 misdemeanor, and a single check (or two or more checks written within 60 days that total) over $1,000 is punished as a Class 6 felony. Class 2 misdemeanors carry up to 12 months in jail and a $1,000 fine, while Class 1 misdemeanors carry a maximum of 18 months in jail and a $5,000 fine. A Class 6 felony carries also carries a minimum of a year and a maximum of 18 months in prison and a fine.
In Tennessee, a bad check for less than $500 is a Class A misdemeanor, while a check for $500 or more is classified as one of five degrees of felonies depending on the check amount. Checks for $500 or greater but less than $1,000 are considered Class E felonies, which carry up to six years in prison and a $3,000 fine, while the most serious felony designation, Class A, is reserved for checks of $250,000 or more. Conviction for a Class A felony carries a maximum of 60 years in prison and a $50,000 fine.
In addition to criminal penalties, state laws authorize civil fines for writing bad checks.
(Colo. Rev. Stat. § § 18-1.3-401, 18-1.3-501, 18-5-205; Tenn. Code § § 39-14-105, 39-14-121, 40-35-111)
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