What is Bankruptcy Fraud?
Bankruptcy is a legal status of a person or other entity that cannot repay the debts it owes to creditors. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor.
The crime of bankruptcy fraud covers many different types of activities, but these generally fall into two broad categories: • Hiding, non-disclosure, or removal of assets during the bankruptcy process in a knowing and fraudulent manner • Use of bankruptcy to avoid litigation or get out of contracts in a knowing and fraudulent manner Prosecutors may file bankruptcy fraud charges for actions taken in contemplation of filing for bankruptcy (using a look-back period) as well as for actions taken during the bankruptcy process. The “knowing and fraudulent” clause is critical. The government must demonstrate intent to defraud. This can be difficult in some cases — thus providing knowledgeable lawyers with the means for a successful defense of the charges.
Bankruptcy fraud is a business crime of filing for bankruptcy with criminal intent, that is with the intention of evading payment for goods even though the buyer has funds that could be used to pay for them, or accepting payment for goods or services but not supplying them. Common types of bankruptcy fraud include petition mills, false oath, concealment of assets, and fraudulent conveyance. Multiple filings are not per se fraudulent; as with all things in the law, it depends on the circumstances. Bankruptcy fraud should be distinguished from strategic bankruptcy, which is not a criminal act (but may prejudice a judge against the filer if there is evidence that bankruptcy is being used strategically).
As America navigates its way through the economic crisis, many families will feel as if filing bankruptcy is their best option at a new beginning. The bankruptcy laws provide individuals the ability to reorganize, or purge their debt. Part of the process requires those who seek bankruptcy protection to file a legal form detailing all assets and liabilities. Those who fail to disclose all assets and liabilities on the bankruptcy forms subject themselves to criminal charges of bankruptcy fraud. During the more than 21 years that I’ve served in federal prison, I’ve met several individuals who were convicted of bankruptcy fraud. They were well-educated individuals who did not consider themselves criminal. Arthur, for example, was a corporate lawyer who should have understood the consequences of providing misleading information on an official government document. He did not. As a consequence of his prevarication, a grand jury charged Arthur with bankruptcy fraud. In Arthur’s case, the fraud
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