Federal bankruptcy laws are designed to provide protection for people who are struggling with a large amount of debt.
In situations where you knowingly:
- abuse protections by making false statements on bankruptcy filing, or
- conceal or transfer assets in order to prevent them from being distributed to creditors in your bankruptcy plan
You could be charged with federal bankruptcy fraud.
Bankruptcy is a process under federal law by which debtors who cannot satisfy their obligations at the present time and will not have any realistic ability to do so in the future can wipe the slate clean, with some important exceptions, by discharging their debts.
On the other hand, creditors who have lent the debtor money which they will not receive back in full are protected to the extent possible through an equitable distribution of the debtor's remaining assets.
The statutes dealing with federal bankruptcy fraud are designed to promote honesty and transparency in bankruptcy proceedings and to ensure a large a portion of the filer's estate is distributed to the unpaid creditors in a bankruptcy case.
The federal crime of bankruptcy fraud, as codified by Title 18 of the United States Code, Section 157, criminalizes the making of false statements or representations with the intent to commit fraud in the bankruptcy process.
In other words, it involves filing a petition for bankruptcy protection as part of a scheme or ploy to defraud creditors.
Federal criminal cases are often uniquely complex, and you will need an experienced federal criminal defense lawyer representing your case in federal court in order to have the best chance at a favorable outcome.
Unlawful Acts in a Bankruptcy Fraud Case
18 U.S.C. § 157 bankruptcy fraud prosecutions can involve allegations that the defendant:
- Initiated a bankruptcy proceeding with the intent to commit fraud;
- Filed a document in a bankruptcy proceeding with the intent to commit fraud; or
- Made any false or fraudulent representation, claim, or promise related to a bankruptcy petition - either before or after the filing of the petition - with the intent to commit fraud.
The obvious question raised in bankruptcy fraud prosecutions, as with most other types of fraud, is whether or not the defendant possessed fraudulent intent.
In general, an individual acts with fraudulent intent where they take some action, usually the making of a statement or claim either orally or in writing, which:
- they know to be false or misleading which they intend the hearer or reader to believe and be deceived by, and which, by virtue of the hearer or reader's mistaken belief that has been induced, will lead to some benefit, monetary or otherwise, to the individual which would not have accrued absent the fraudulent statement.
Conversely, a statement made in good faith which is merely mistaken or the product of ignorance does not evidence a fraudulent intent, even if the practical effect of the false statement is a financial benefit to the defendant.
18 U.S.C. § 157 Bankruptcy Fraud Case Example
In the bankruptcy context, a simple example would be hiding assets. Suppose the defendant, a debtor, has racked up many thousands of dollars of consumer debt which they don't wish to pay back.
In truth, the defendant knows that they control several bank accounts with more than enough cash to satisfy the debt.
However, the debtor would rather save the money to spend on more expensive consumer items and so conceals the accounts by putting them in fictitious names, in offshore banks which are not directly regulated by U.S. authorities, etc.
The debtor then goes to bankruptcy court and files a petition to discharge the consumer debts while falsely claiming that they have no liquid assets with which to pay off the debt.
The debtor has made a knowingly false claim in the hope that it will be believed by the bankruptcy court, and thereby obtain relief from their consumer debt to which they would not otherwise be entitled absent the fraudulent hiding of assets.
In this scenario, the debtor is guilty of bankruptcy fraud in violation of Title 18 Section 157.
Penalties for Federal Bankruptcy Fraud
Bankruptcy fraud under Section 157 is a serious federal crime punishable by:
- up to five years in federal prison, a fine, or both a fine and imprisonment.
The exact sentence received by a given defendant can vary dramatically depending on:
- the application of the United States Sentencing Guidelines
- the equitable factors related to the defendant's history, character, and other policy considerations as enumerated in 18 U.S.C. § 3553(a), and
- the exercise of the sentencing court's relatively broad discretion as compared with sentencing in California state courts
However, there are many federal statutes prohibiting specific types of bankruptcy fraud and each will carry its own potential penalty for a violation of these statutes:
- 18 U.S.C § 152 - Concealment of assets, false oaths, bribery
- 18 U.S.C § 153 - Embezzlement against estate
- 18 U.S.C § 154 - Adverse interest and conduct of officers
- 18 U.S.C § 155 - Fee agreements in cases of title 11 and receiverships
- 18 U.S.C § 156 - Knowing disregard of bankruptcy law
An experienced criminal defense attorney in a federal sentencing will leverage all of these sources of authority to persuade the judge to the maximum extent possible to show leniency to their client even in the case where the defendant is clearly factually guilty.
Federal Criminal Defense Lawyer
If you or a family member is being investigated for, or has been charged with, bankruptcy fraud in violation of 18 U.S.C. § 157, contact our experienced federal criminal defense attorneys for an initial consultation.
The statute of limitations for most federal bankruptcy fraud cases is five years, meaning the government has to file an indictment within five years of a bankruptcy fraud offense to pursue federal charges against anyone who is suspected of committing fraud.
We can advise you on the most effective and immediate steps to take to safeguard your rights and begin working toward the best possible resolution of your case.
This may involve a pre-indictment plea negotiation with the government's attorneys, a post-indictment negotiated settlement, or a jury trial in federal court.
The particular facts and circumstances of your case will determine which course is best to pursue.
Some common defenses include lack of intent, mistake, insufficient evidence, and others
These decisions are made in consultation with your attorney so that the strategy crafted is tailored to your exact situation.
Eisner Gorin LLP is a top-ranked criminal defense law firm located at 1875 Century Park E #705 Los Angeles, CA 90067.
Call us for a consultation at (310) 328-3776.