Filing for bankruptcy is, by and large, only something pursued by those who in very difficult financial circumstances, have tried to rectify their situation, and who would face significant financial hardship by attempting to take on their debt alone. That being said, there are some who attempt to make use of the bankruptcy process to defraud the government.
When a bankruptcy court finds evidence of fraud, the case may be referred to the Federal Bureau of Investigation for a criminal investigation. The agency doesn’t pursue every single case, but puts its focus on cases with a lot of money at stake, cases in which the debtor filed for bankruptcy in multiple states, and cases which are suspected to involve organized crime.
Needless to say, those who face bankruptcy fraud investigation, or bankruptcy fraud charges, should always work with an experienced attorney who understands the issues that come up in these cases and who can provide guidance throughout the investigation and advocacy if charges are filed.
Bankruptcy fraud can take different forms. In some cases, the debtor conceals assets in order to avoid having to liquidate them, as would be required in Chapter 7 bankruptcy. In other cases, the debtor intentionally files false or incomplete forms. Multiple filings using false information or real information in several states can also constitute fraud. Bribing a court-appointed trustee can also occur, and this is also a form of fraud. Most cases of bankruptcy fraud, though, involve concealment of assets.
According to the FBI, bankruptcy fraud often occurs in connection with other crimes, such as mortgage fraud, money laundering, mail and wire fraud, identity theft, credit card fraud and other such crimes. In our next post, we’ll continue this discussion and comment on the importance of working with experienced legal counsel in bankruptcy fraud cases.
Sources:
Cornell University Law School, Bankruptcy Fraud, Accessed May 20, 2016.
Federal Bureau of Investigation, Bankruptcy Fraud, Accessed May 20, 2016.