Bankruptcy fraud doesn’t occur as a result of an innocent mistake. For instance, if you forget to file a bankruptcy form and the court dismisses your case, you haven’t committed bankruptcy fraud, and you’ll be able to refile immediately. However, knowingly doing something to avoid paying a creditor will quickly get you into hot water, and the consequences will differ depending on whether:
Although it occurs in only a small percentage of cases, most bankruptcy fraud has some connection with a debtor’s attempt to avoid paying creditors by concealing assets or abusing the system. For instance, bankruptcy fraud can occur as a result of:
Other offenses include the destruction of records, falsifying documents filed in court, using false identity information, bribing court officials, and stealing from the bankruptcy estate.
It isn't just the debtor who can run afoul of the law. Creditors sometimes knowingly file false proof of claims to collect money not owed. Lawyers sometimes attempt to bribe the bankruptcy trustee (the official responsible for overseeing the case) or the bankruptcy judge. And trustees have raided funds they’ve collected on behalf of creditors.
Civil actions are often brought by a single creditor seeking a remedy against a debtor for an isolated action (instead of a broader action filed by the Department of Justice). For instance, a creditor might claim that the debtor lied about income when requesting credit or show that the debtor never intended to repay an obligation.
The level of proof necessary to bring civil sanctions against a debtor or others in the bankruptcy court is much lower than what the DOJ must prove in a criminal case. Therefore, regardless of whether there is a criminal proceeding, the bankruptcy court has at its disposal several options:
Learn more about proving bankruptcy fraud.
A criminal bankruptcy fraud case will tend to involve a more elaborate scheme than what the average person would attempt, with the debtor knowingly executing a plan impacting numerous, if not all, creditors. And it doesn’t happen in a vacuum. The actions leading to prosecution for bankruptcy crimes can violate other federal statutes. For instance, an indictment for bankruptcy fraud often includes counts for perjury, tax fraud, bank fraud, wire mail fraud, identity theft, and conspiracy, bringing a schedule of penalties adding years to sentences imposed for bankruptcy crimes.
The Federal Bureau of Investigation (FBI) investigates bankruptcy crimes. If it appears that a crime has been committed, the case will proceed to the U.S. Department of Justice (DOJ) for prosecution. If convicted, sentencing for a conviction could include any or all of the following:
Example. In a well-known bankruptcy case, Joe and Teresa Giudice (from the Real Housewives of New Jersey) plead guilty to 41 federal counts of criminal behavior, including bankruptcy fraud. At sentencing, Mrs. Giudice received 15 months in prison while her husband received 41 months. Together they were ordered to pay restitution of $414,000. The court allowed them to serve the sentences consecutively (one following the other) so that a parent would remain home to care for their young children during the incarceration period.
Bankruptcy fraud, a federal felony, is serious and carries with it significant penalties that can affect your life for years, well beyond any benefit received from committing the crime.
A federal felony comes with more than a formal sentence—many of your rights will be restricted, sometimes for life. For instance, you might not be able to:
Regardless of immigration status, non-citizens convicted of a felony are subject to deportation. Mr. Guidice, referenced above, is not a citizen of the United States. When he completes his prison term, he could face deportation.
Errors occur in bankruptcy on occasion. If you’re concerned that you’ve made a mistake in your paperwork or bankruptcy case, a bankruptcy attorney can help you make the proper adjustment promptly.