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.
Although it occurs in only a small percentage of cases, most bankruptcy fraud has some connection with a debtor’s attempt to conceal assets. 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 have filed claims that they knew were false. Lawyers have been known to attempt to bribe the trustee (the official responsible for overseeing your case) or the bankruptcy judge. And trustees have raided funds they’ve collected that should have gone to creditors.
(For more information, start with What Is Bankruptcy Fraud?)
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:
Bankruptcy fraud doesn’t happen in a vacuum. The actions that lead to prosecution for bankruptcy crimes can violate other federal statutes. An indictment for bankruptcy fraud often includes counts for perjury, tax fraud, bank fraud, wire mail fraud, identity theft, and conspiracy. Each of those brings a schedule of penalties that can add to sentences imposed for bankruptcy crimes.
Example. In a recent high-profile 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.
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.
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: