bankruptcy fraud: an overview
Bankruptcy fraud is a white-collar crime that takes four general forms. First, debtors conceal assets to avoid having to forfeit them. Second, individuals intentionally file false or incomplete forms. Third, individuals sometimes file multiple times using either false information or real information in several states. The fourth kind of bankruptcy fraud involves bribing a court-appointed trustee. Commonly, the criminal will couple one of these forms of fraud with another crime, such as identity theft, mortgage fraud, money laundering, and public corruption.
Nearly 70% of all bankruptcy fraud involves the concealment of assets. Creditors can only liquidate those assets listed by the debtor; thus, if the debtor fails to reveal certain assets, the debtor can keep the assets despite having an outstanding debt. To further conceal the assets, businesses or individuals may transfer these unrevealed assets to friends, relatives, or an associate so that the asset cannot be located. This type of fraud raises the risk and costs associated with lending and becomes passed on to others who wish to borrow money.
Petition mills are one type of bankruptcy fraud scheme on the rise in the United States. Petition mills purport to keep financially-strapped tenants from becoming evicted by passing themselves off as a consulting service. While the tenant believes to be receiving help in avoiding eviction, the petition mill actually files the tenant for bankruptcy and drags out the case. Meanwhile, the “service” charges exorbitant fees, empties the tenant’s savings account, and ruins the tenant’s credit score.
Multiple filing fraud consists of filing for bankruptcy in multiple states, using the same name and information, using aliases and fake information, or some combination thereof. Multiple filings slow down the court systems’ ability to process a bankruptcy filing and liquidate the assets. Often, multiple filings provide more cover for a debtor trying to engage in the concealment of assets.
A proceeding in which suspects are charged with bankruptcy fraud is criminal in nature. Federal prosecutors can bring charges for suspected bankruptcy fraud under 18 U.S.C. § 151. Proof of fraud requires showing that the defendant knowingly and fraudulently made a misrepresentation of material fact. Bankruptcy fraud carries a sentence of up to five years in prison, or a fine of up to $250,000, or both. See 18 U.S.C. § 152.
menu of sources
Federal Judicial Decisions
- Important U.S. Circuit Courts of Appeals Decisions:
- United States v. Hughes, 401 F.3d 540 (4th Cir. 2005)
- United States v. Dennis, 237 F.3d 1295 (11th Cir. 2001)
- United States v. Butler, 211 F.3d 826 (4th Cir. 2000)
- United States v. Ladum, 141 F.3d 1328 (9th Cir. 1998)
- United States v. Levine, 970 F.2d 681 (10th Cir. 1992)
- United States v. Gibbs, 594 F.2d 125 (5th Cir. 1979)
Key Internet Sources
- U.S. Department of Justice
- Federal Bureau of Investigation
- Financial Crimes Enforcement Network
- National White Collar Crime Center
Other White-Collar Crime In The News
Useful Offnet Sources
- Good Starting Point in Print:
- Kathleen F. Brickey, Corporate & White Collar Crime, Aspen Publishers (2006)
- Ellen Podgor and Jerold Israel, White Collar Crime in a Nutshell, West Group (2004).