What Is Bankruptcy Fraud in California?

Unexpected personal crises like divorce, health problems, and unemployment are common reasons for declaring bankruptcy. Most people who file for bankruptcy are often individuals undergoing severe financial crises. However, some people commit bankruptcy fraud out of malice and to avoid meeting their financial obligations. Under the law, bankruptcy fraud is a federal crime. This crime attracts a fine or even a jail term. If you are accused of bankruptcy fraud, you need to seek the services of a skilled attorney to help you navigate the justice system.

Bankruptcy Fraud Explained

When filing for bankruptcy, you need to be completely transparent. While filing for bankruptcy under Chapter 7 or Chapter 13, the law expects you to do the following:

• List the streams of your income.
• List your properties.
• List all your assets, and
• Any asset that you could have transferred to other people within a particular period.

You could face bankruptcy fraud charges if you omit certain investments or financial transactions with the intent to ‘’stiff’’ creditors. Some of the fraudulent conducts that portray intent to commit bankruptcy fraud include:

• Doctoring or changing financial statements to conceal your earnings.
• Giving outdated financial records or misleading information to the creditors.
• Failing to open up lottery winnings or any other prizes with quantifiable value.
• Filing inaccurate documents, which have contradictory or untrue information.
• Moving money around suspiciously in an attempt to hide investments, earnings, or profits.

Often, federal investigators and prosecutors follow all sorts of schemes and tricks keenly. They have seen it all, and they know some individuals and businesses often use dirty tricks to fool the system and avoid their debt liabilities.

Some people think bankruptcy in and of itself is a great and fair chance to rewrite their wrongs and undue financial decisions. However, other individuals still attempt to avoid accountability. You should do the following if you are considering filing for bankruptcy:

• Avoid any dishonesty.
• Watch for fraudulent and suspicious conduct and report it immediately.
• Seek the services of a bankruptcy attorney with an outstanding reputation and proven track record.
• Be 100% open to the federal bankruptcy agents and your bankruptcy attorney.

Simple clerical mistakes and human error can prove dire, even if you are not trying to defraud creditors or knowingly falsify financial statements. If you carelessly forget to include critical financial documents or fail to notice an error, call your attorney immediately to alert the courts and government.

Bankruptcy Fraud and the Government

California State takes the crime of bankruptcy fraud seriously. The United States Trustee Program (USTP) is responsible for overseeing bankruptcies. USTP is an arm of the Department of Justice. Therefore, when you are filing bankruptcy, you are dealing with the government, and they take these transactions seriously.

Typically, bankruptcy is an option often used in dire financial circumstances. It is used to restructure or forgive debts, giving you a chance to get back on your feet. Therefore, if USTP suspects any fraudulent activity, they will move faster and conduct investigations aggressively.

Generally, bankruptcy fraud is a federal offense, and the charges arising from this offense attract hefty penalties as well. If the court finds you guilty of this crime, you could face the following penalties:

• A fine that does not exceed $250,000.
• A jail term that does not exceed five years in a state prison.

Usually, prosecutors who file bankruptcy fraud lawsuits on behalf of the federal government impose severe penalties on this crime. It is, therefore, advisable that you first understand how to file for bankruptcy correctly, even if you have hired a skilled bankruptcy attorney. You need to triple-check the filing of your attorney and confirm that all your debts, savings, earnings, and assets are appropriately accounted for. The court could charge you with bankruptcy fraud if you fail to list even a single asset, whether mistakenly or intentionally.

Types Of Bankruptcy Trustees

Bankruptcy trustees work in various types of bankruptcies as follows:

Chapter 7 Bankruptcy — Liquidation

Both individuals or businesses can file for Chapter 7 liquidation bankruptcy. It is meant to discharge certain debts to give you a new beginning. In Chapter 7, the trustee takes charge of your business or household assets and turns them into cash or sells them to pay the creditors. You could retain some personal investments or real estate, often known as ''exempt assets’’. Trustees under Chapter 7 are also called ‘’panel trustees’’. They have this name because the court appoints them to a panel and assigns them a specific bankruptcy.

Chapter 13 Bankruptcy — Repayment Plan

If you have a regular income, Chapter 13 allows you to keep your assets and pay your debts depending on a repayment plan for three to five years. The court approves the budget and the plan, and the trustee works as the disbursing agent. The trustee collects payments from you and pays your creditors depending on the repayment plan. Chapter 13 bankruptcy process often constitutes a meeting between you and your creditors. The trustee often sets up and runs this meeting.

The trustee can consult you before the meeting to ensure the petition and repayment are accurate and complete. Chapter 13 trustees are also known as ''standing trustees'' since they have a continuing appointment to bankruptcy issues within a specific location. Sometimes, a Chapter 13 trustee can request you to take a course in financial management.

Chapter 11 Bankruptcy — Reorganization

Chapter 11 is known as "reorganization" bankruptcy because it sets up a process for you or the business to organize debts while operating. Chapter 11 is usually applicable in business bankruptcies.

Generally, there is no trustee in Chapter 11. You are allowed to operate your business and exercise the duties of a trustee. If the court appoints a trustee, he/she takes over your property and business during the reorganization period. A trustee can form a creditor's committee to discuss with you how to form a repayment plan.

Types Of Bankruptcy Fraud

Most people are not disciplined when it comes to issues of money. Bankruptcy fraud is common, but perpetrators rarely get away with it. Often, bankruptcy fraud is part of a larger scheme. For example, a ‘bust-out’ business bankruptcy scheme is one of the common fraud crimes. This involves a person or a group of people who purchase a business enterprise and use credit to outfit the same business. Later, these people sell off all of the assets quickly, intending to avoid paying back the creditors. They file for bankruptcy without giving the information on the previously sold assets, concealing the profits.

However, defrauding federal bankruptcy courts in the current digital age is hard. Most financial transactions, deeds, and titles are stored on a computer. This creates a digital roadmap and footprint for bankruptcy trustees to capture and verify the accuracy of the information contained in your bankruptcy filing. Federal bankruptcy trustees work with highly trained computer forensic experts to deal with fraudulent financial conduct.

Typically, bankruptcy fraud takes several forms, including:

Filing Bankruptcy In Multiple States

It is a crime for any person to file for bankruptcy in multiple states. The prosecutor could also charge you with fraud if you use multiple identities to file bankruptcy. It is also an act of fraud to use your married name in one bankruptcy filing and then use your maiden name to file for bankruptcy elsewhere. Since bankruptcy is a federal offense, you must think before trying to 'pull one over' on the federal government.

Intentionally Filing Incorrect or Incomplete Forms

Filing for bankruptcy is a challenging process. It can be a long and complex procedure, depending on your debt. It also depends on how your finances and business are structured. While filing for bankruptcy, you must seek clarification on some requests or questions. You could inquire with your attorney if you are not sure, and he/she will be able to guide you.

However, if you sign off on your filings when you have made an error, you could request your attorney to communicate with the trustee to avoid facing bankruptcy fraud charges. You could be given the last chance to set your record straight by meeting creditors and your bankruptcy trustee. You will face fraud charges if you intentionally conceal certain documents or write in false information for you to benefit financially.

Credit Card Fraud

Credit card fraud is also a common crime that bankruptcy courts often face. You could commit this crime by deciding to pile on a bunch of charges to your credit cards before filing for bankruptcy. You could do this to rack up charges after filing for bankruptcy or avoid paying back creditors.

Bankruptcy trustees are charged with the responsibility of overseeing spending behaviors. They also have the knowledge to track unusual spending behaviors. If they find you guilty, they will charge you with bankruptcy fraud or deny you a bankruptcy request.

Concealing Assets or Property Intentionally

When filing for bankruptcy, you must disclose all the 'gifting' you gave to your friends, business partners, and family members. It is an act of fraud if you give things like boats or cars, or loans to another person to dupe the creditors. In addition, you could face charges under federal law if you are guilty of concealing assets intentionally.

Petition Mills

Generally, petition mills are frauds that claim to protect financially strapped tenants from eviction. These frauds are common in cities with poor people or many immigrants. The fraud starts when a rental-property tenant responds to a poster advertising a typing service or local newspaper listing, supposedly advising tenants on avoiding eviction. However, the typing service proceeds to file bankruptcy in the tenant’s name without informing them. It then imposes outlandish fees and drags the matter out for several months. The typing service will postpone the tenant's inevitable eviction while draining their savings and ruining their credit.

How To Prove Bankruptcy Fraud

Often, proving bankruptcy fraud requires the prosecutor to do more than present testimony and schedules. Many bankruptcy frauds happen when some individuals wrongfully try to gain an economic advantage over others, particularly creditors, in bankruptcy matters. Debtors are the main perpetrators, often trying to hide some of their assets.

The bankruptcy trustee will often suspect bankruptcy fraud if inconsistencies manifest in the official paperwork you complete and file with the court. The trustee could also question your testimony at the hearing during the 341 meeting of creditors, which all filers must attend. However, there are other ways a trustee could obtain your fraudulent information. He/she could obtain the information from other sources, including:

• The documentation provided, like accounting records, insurance inventories, bank statements, pay stubs, and tax returns.
• Appraisals.
• Public record searches.
• Informants, like your former spouses, your family members, and creditors.

The U.S. Trustee's Office could also uncover evidence of your bankruptcy fraud by conducting a bankruptcy audit. They often carry out this audit in the following ways:

• Flagging your case if it does not fit within expected parameters, especially if you claim substantial monthly expenses.
• Select your case for review on a random basis.

The government has to resolve two questions for almost all bankruptcy offenses. The questions are:

• Did you intend to delay, hinder, or deceive the creditors or the court?
• Did you misrepresent material information?

Determining whether you concealed assets or failed to report all your assets is easier than providing the evidence that you intended to cheat your creditors. First, however, the government must prove that bankruptcy fraud did not arise from an innocent mistake.

Signs Of Fraud That Prove Intent

Proving intent is easier if you admit the offense. Prosecutors often rely on circumstantial proof, including:

• You listed or transferred the asset for much less than its value.
• You transferred the title but retained the use of the asset.
• The property is not exempt.

How To Avoid Bankruptcy Fraud

The whole process of filing for bankruptcy depends on your honesty. It is good to do everything possible to avoid bankruptcy fraud. If you make common clerical mistakes, you should report and rectify them when you discover them. You should disclose all your open lines of credit, income, savings, assets, and holdings. You also need to report any loans, however minor.

You need to list any debts you owe in your bankruptcy filing, however small. You need to do the following to avoid bankruptcy fraud:

• Go over your bankruptcy filing with your attorney before signing it.
• You need to go over your bankruptcy filing several times to ensure accuracy.
• You can reach out to your bankruptcy trustee at any time with any questions or to address any concern that could deem serious.
• Since attorneys also make mistakes, go over their work before signing.
• Carefully review the documents repeatedly.

Reporting a Suspected Bankruptcy Fraud

If you suspect bankruptcy fraud activity, you are required to prepare a written summary containing the following information:

• The address and name of the business or individual you are reporting.
• The name of the bankruptcy fraud, the fraud number, and the place fraud is taking place.
• The details of the fraud activity, including how you discovered the fraud and when the fraud took place.
• You need to attach all the relevant evidence.
• Give the details of the concealed property and its worth or the amount of any concealed income, undervalued property, or other omitted claim or asset.
• Provide your email address, telephone number, address, and your name.
• Provide any other identifying information you could have concerning the business or person involved in fraud.

If you provide significant evidence and specific information, the United States Trustee Program (USTP) will do its investigations faster and prosecute the perpetrators. You are required to provide the information voluntarily, and the USTP keeps it secret. You can send the information to USTP via their physical mail or email.

You can also report bankruptcy fraud activity directly to your local office trustee. You are required to do so by giving the office's telephone number and address.

The Department of Justice has a policy of not disclosing the details of criminal investigations. The USTP will, therefore, neither deny nor confirm whether the fraud could have been committed or whether it will or will not conduct further investigation. This means USTP will only reach out to you if it is necessary to obtain further clarification. The USTP will otherwise not answer your hotline submission.

The information you provide will only be disclosed under the following conditions:

• When the disclosure of the information is essential to solicit from such entity information pertinent to the investigation.
• When the information is required to perform the duties of the trustee.
• When the information is relevant to the recipient entity’s law enforcement duties.
• When the information is relevant to an entity that possesses it and it is relevant to the investigation.

The USTP could make other disclosures for routine purposes.

Fighting Bankruptcy Fraud Charges

When filing a bankruptcy fraud case, the prosecutor has the burden of proof to show that you are guilty. The prosecutor should prove beyond a reasonable doubt that you committed the crime. With the help of your attorney, you can use these defenses to prove your innocence.

You Made A Genuine Mistake

You could claim that your failure to list assets or disclose the assets you had transferred was purely accidental.

Statute Of Limitations

You could claim that the statute of limitations within which the prosecutor should bring charges against you has expired.

Renunciation Or Correction

You can also point out that you made a correction or amendment to your bankruptcy paperwork immediately after you discovered that you had misrepresented or omitted some information.

Find a Los Angeles Bankruptcy Attorney Near Me

Have you or a loved one been accused of committing bankruptcy fraud?

Do not hesitate to contact our experienced attorneys at the Los Angeles Bankruptcy Attorney. Contact us at 424-285-5525 to speak to one of our attorneys.