Federal Crime of Bankruptcy Fraud – 18 U.S.C. § 157
When individuals or businesses have unmanageable debts, they will often file for bankruptcy in a federal bankruptcy court. If you file for bankruptcy, then your creditors can't attempt on their own sue you or obtain your property to satisfy unpaid debts.
Rather, creditors have to go to the bankruptcy court where you filed a bankruptcy petition. This is where a judge determines how much property you own – how much you owe – and who exactly gets paid. The primary purpose of this process is to allow debtors a new beginning and get out of unsustainable debt.
There are a different federal criminal charges that happen in a bankruptcy filing. First, if you knowingly make a false statement in a bankruptcy filing, you could be facing a bankruptcy fraud charge. The FBI is the primary investigative agency responsible for addressing bankruptcy fraud.
It is a separate offense to knowingly conceal assets from a bankruptcy court or trustee, so they won't be distributed to your creditors as a part of the bankruptcy plan.
When anyone who has filed for bankruptcy conceals assets, makes false statements, files a false claim, destroys or conceals financial records, or offers or takes a bribe, they have committed the federal crime of bankruptcy fraud.
The difference between criminal and civil fraud is intent: Criminal fraud requires proving that you knowing had fraudulent intent, while civil fraud usually involves less deception and cheating.
To give readers a better understanding of federal bankruptcy charges, our federal criminal defense attorneys are providing a detailed overview below.
Federal Bankruptcy Fraud Process & Unlawful Acts
Under federal law, bankruptcy is a process where debtors who are unable to currently meet their obligations and won't have a realistic ability to do so in the future can wipe their slate clean, with some exceptions, by discharging their substantial debts.
However, creditors who have loaned the debtor money, which they now won't be paid back in full, revive protections through an equitable distribution of the debtor's assets.
The federal crime of bankruptcy fraud is defined under 18 U.S.C. § 157. This statute makes it a crime to knowingly make false statements or representations with intent to commit fraud in a bankruptcy process.
The prosecution of a federal bankruptcy fraud case typically involves accusations that you have committed the following unlawful acts:
- Initiated a bankruptcy proceeding with intent to commit fraud
- Filed a document in bankruptcy proceeding with intent to commit fraud
- Made a fraudulent representation, claim, or promise in a bankruptcy petition, before or after filing of the petition, with intent to commit fraud.
As you can see from the list of unlawful acts in a bankruptcy fraud prosecution, the obvious element of the crime deals with whether or not you possessed fraudulent intent.
Typically, you act with “fraudulent intent” when you take some type of action, such as making a statement or claim, either verbally or in writing, that you know is false or misleading.
It must include intent that the person receiving it is to be deceived by, and due to their mistaken belief, it will lead you to some type of monetary benefit, to which you would have not received absent the false or fraudulent statement.
Concealment of Assets
The most common form of federal bankruptcy fraud occurs when someone filing for bankruptcy attempts to hide or conceal assets which is defined under the related statute 18 U.S.C. § 152.
A common example includes a situation includes a debtor with a substantial amount of consumer debt they don't want to pay back.
However, the debtor knows they have numerous bank accounts with sufficient funds to cover the debt. Since the debtor wants to save their funds for other expensive items, they conceal their bank accounts by placing them in fictitious names, or an offshore bank that is not regulated authorities within the United States.
So, the debtor goes to bankruptcy court and files a petition to discharge the consumer debt, while they falsely claim they don't have the assets to pay off the debt.
In this classic example of bankruptcy fraud, the debtor knowingly made a false claim hoping it would be believed by the bankruptcy court, who would in turn give them relief from their consumer debt, which they would not otherwise be entitled absent their act of fraudulently hiding assets. In this scenario, the debtor is guilty of 18 U.S.C. § 157 bankruptcy fraud.
Federal Laws on Bankruptcy Crimes
The federal criminal laws associated with bankruptcy are contained in 18 U.S. Code Chapter 9. It should be noted there are different statutes related to a bankruptcy offense:
18 U.S.C. § 151 – Definitions of debtor as person who filed petition
18 U.S.C. § 152 – Concealing assets, false oaths and claims, 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 – Unauthorized fee agreements
18 U.S.C. § 156 – Knowing disregarding bankruptcy law or rule
18 U.S.C. § 157 – Defines bankruptcy fraud
18 U.S.C. § 158 – Gives the United States attorneys and FBI agents authority to address bankruptcy investigations and bankruptcy proceedings.
Penalties for Bankruptcy Fraud
18 U.S.C. § 157 bankruptcy fraud is a serious federal crime that can be punished by up to five years in federal prison, a fine, or both.
It should be noted the sentence can vary greatly because of the application of the United States Sentencing Guidelines, factors related your criminal history, other considerations and the exercise of the judge's broad discretion, which are much different than sentencing in a California state criminal court.
Our experienced federal criminal defense attorneys will leverage all sources of authority to convince a judge to the maximum leniency possible, even in cases where there is no doubt as to guilty.
What to Do If Charged with Federal Bankruptcy Fraud
If you are under investigation, or already indicted for federal bankruptcy fraud under 18 U.S.C. § 157, contact with our federal criminal defense lawyers for a consultation.
We can provide advice on the effective steps to take to protect your rights and start working on the best possible outcome on the case. We might be able to make an argument there was a lack of intent to defraud or there is insufficient evidence to prove a fraud crime.
We can help you try to avoid prosecution by getting the charges dismissed, or negotiate with the prosecutor for a plea agreement for a lighter sentence or charged with a lesser offense.
This could include a pre-indictment plea negotiation, a post-indictment negotiated settlement, or a jury trial. The facts and circumstances of your case will determine strategy to pursue.