Federal Crime of Bankruptcy Fraud

18 U.S.C. § 157 – Federal Bankruptcy Fraud Defense Lawyer

Filing for bankruptcy is meant to give individuals and businesses a financial reset. However, when the government believes someone used the bankruptcy process to deceive creditors or the court, federal prosecutors may bring charges under 18 U.S.C. § 157.

A conviction for bankruptcy fraud can result in up to five years in federal prison, significant fines, restitution, and long-term financial and professional consequences.

If you are under investigation or charged with federal bankruptcy fraud, early intervention by experienced federal defense counsel is critical.

Your best hope for a favorable outcome is with a highly experienced federal criminal defense attorney at Eisner Gorin LLP in Los Angeles.

To schedule a consultation, call (818) 781-1570 or contact us here.

What Is Bankruptcy Fraud Under 18 U.S.C. § 157?

18 U.S.C. § 157 makes it a federal crime to knowingly engage in a scheme to defraud in connection with a bankruptcy proceeding.

The statute criminalizes conduct such as:

Filing a bankruptcy petition with fraudulent intent
Making false representations in bankruptcy documents
Submitting fraudulent claims or promises in connection with bankruptcy
Using the bankruptcy process as part of a larger fraudulent scheme

The key element is intent to defraud.

What Must the Government Prove?

To secure a conviction under 18 U.S.C. § 157, federal prosecutors must prove beyond a reasonable doubt:

1. A Scheme to Defraud

There was a plan or course of conduct intended to deceive.

2. Knowing and Intentional Conduct

The defendant acted knowingly, not accidentally or negligently.

3. Connection to a Bankruptcy Proceeding

The fraudulent conduct occurred in relation to a federal bankruptcy case.

Unlike civil bankruptcy disputes, criminal bankruptcy fraud requires proof of deliberate intent to deceive for financial gain.

Common Forms of Bankruptcy Fraud

Concealment of Assets

The most common type of bankruptcy fraud involves hiding assets from the bankruptcy court or trustee. This often implicates the related statute, 18 U.S.C. § 152.

Examples include:

Failing to disclose bank accounts
Transferring assets to family members before filing
Using fictitious names to hold property
Hiding offshore accounts
Concealing business interests

If the court is misled into discharging debts based on false financial disclosures, prosecutors may pursue criminal charges.

False Statements or False Oaths

Providing inaccurate information in bankruptcy schedules, petitions, or testimony under oath may trigger criminal liability if done knowingly and with intent to deceive.

Filing Fraudulent Claims

Submitting fabricated creditor claims or false documentation to manipulate asset distribution can constitute bankruptcy fraud.

Bribery or Corrupt Influence

Offering or accepting bribes in connection with bankruptcy proceedings may lead to additional federal charges.

Related Federal Bankruptcy Crimes

Federal bankruptcy crimes are found in Chapter 9 of Title 18 of the United States Code, including:

18 U.S.C. § 151 – Definitions
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 of officers
18 U.S.C. § 155 – Unauthorized fee agreements
18 U.S.C. § 156 – Knowing disregard of bankruptcy law
18 U.S.C. § 157 – Bankruptcy fraud

Bankruptcy fraud charges may also be combined with:

The Role of Fraudulent Intent

Intent is the dividing line between civil disputes and criminal prosecution.

Fraudulent intent typically requires proof that:

You knowingly made a false or misleading statement;
You intended the court or creditors to rely on it;
You sought a financial benefit you would not otherwise receive.

Honest mistakes, accounting errors, or misunderstandings do not automatically equal criminal fraud.

Penalties for Bankruptcy Fraud

Bankruptcy fraud under 18 U.S.C. § 157 is punishable by:

Up to five years in federal prison
Substantial fines
Restitution
Supervised release

Sentencing is governed by the Federal Sentencing Guidelines, which consider:

Amount of financial loss
Number of victims
Sophisticated means
Criminal history

Loss calculations can significantly impact sentencing exposure.

How Federal Bankruptcy Fraud Investigations Begin

Investigations may originate from:

Bankruptcy trustee referrals
Creditor complaints
Inconsistent financial disclosures
Suspicious asset transfers
IRS or banking reports

The FBI typically investigates bankruptcy fraud allegations.

If federal agents contact you, do not provide statements without legal counsel.

Defense Strategies in Bankruptcy Fraud Cases

An indictment is not a conviction. Effective defense strategies often focus on challenging the government's proof of intent and materiality.

Lack of Intent to Defraud

Errors in documentation, misunderstanding of complex financial forms, or reliance on professional advice may negate criminal intent.

Full Disclosure Argument

If assets were eventually disclosed or recoverable, this may weaken the fraud allegation.

Insufficient Evidence

The government must prove a deliberate scheme—not simply poor record-keeping.

Disputing Loss Calculations

Sentencing often hinges on the amount of alleged financial harm. Challenging loss figures may reduce penalties significantly.

Frequently Asked Questions

Is bankruptcy fraud a felony?

Yes. Bankruptcy fraud under 18 U.S.C. § 157 is a federal felony punishable by up to five years in prison.

What is the most common type of bankruptcy fraud?

Concealing assets from the bankruptcy court or trustee.

Can a mistake on bankruptcy forms lead to criminal charges?

Not necessarily. Criminal charges require proof of knowing and intentional fraud.

Can bankruptcy fraud charges be dismissed?

Yes. Many cases turn on whether prosecutors can prove fraudulent intent beyond a reasonable doubt.

What to Do If You Are Under Investigation

If you are facing a federal bankruptcy fraud investigation:

Do not speak to federal agents without counsel
Do not alter financial records
Preserve documentation
Contact an experienced federal criminal defense attorney immediately

Early legal intervention may prevent formal charges or mitigate potential penalties.

Speak With a Federal Bankruptcy Fraud Defense Attorney

Bankruptcy fraud investigations are complex and high-stakes. A conviction can result in imprisonment, financial ruin, and long-term reputational damage.

Knowing how restitution is calculated, where it can be challenged, and what legal asset protection options exist is as crucial as the criminal defense process.

If you are under investigation or charged under 18 U.S.C. § 157, seek experienced federal criminal defense counsel immediately to protect your rights and future.

Eisner Gorin LLP is here to help. Schedule your consultation at (818) 781-1570 or contact us here. Our law firm is based in Los Angeles.

Bankruptcy Fraud