Fraud is prevalent in bankruptcy proceedings. A debtor, creditor, or fiduciary may be charged with bankruptcy fraud. For example, individuals may attempt to transfer assets to others prior to filing for bankruptcy protections. There are numerous acts listed under federal statutes that constitute bankruptcy fraud. A common thread that runs through all of the acts is that the defendant act in a knowing fashion. A knowing fashion means that the defendant act in a voluntary and intentional manner. The prosecution may show that the defendant acted in a fraudulent manner by way of direct or circumstantial evidence.
Some fraudulent acts include:
- Concealing or transferring property.
- Making a false statement.
- Making a false oath.
- Making a false claim.
- Alteration of records.
- Withholding records from the bankruptcy trustee or court.
Fraudulent Acts Elaborated
1) Concealment or transfer of property prior to or in contemplation of bankruptcy may constitute a fraudulent act. Often times the debtor will fail to list all of his properties in an attempt to conceal his property interests from a bankruptcy trustee. The debtor is required under federal law to list all properties in which he has a legal or equitable interest in on the bankruptcy petition. The debtor's concealment may be overt or convert in nature.
The debtor may also improperly transfer property in contemplation of bankruptcy. The debtor may do this in an overt or covert manner as well.
2) Making a false statement or oath may constitute a fraudulent act. If the debtor says that he has no property in Florida and actually does, he made a false statement. If the debtor swears to tell the truth under oath or signs a document listing his debts or assets under oath and actually made a false oral or written statement, his actions result in him making a false oath. With respect to making a false statement or oath, the prosecution is required to show:
- Bankruptcy proceedings are in progress.
- The false statement or oath was made in the proceedings under penalty of perjury.
- The false statement pertained to a material fact.
- The statement was knowingly and fraudulently made during the bankruptcy proceedings.
3) The debtor is also prohibited from making a false claim. A false claim is any claim that is made that is not truthful in nature. The debtor may make a claim that is lower than it actually is with respect to property owned or assets that the debtor possesses.
4) The debtor is prohibited from altering his records. Typically after the debtor has filed for bankruptcy he is required to produce records supporting his claims. Often times debtors will attempt to alter documents containing valuation information or other financial information such as bank account information.
5) The debtor is prohibited from withholding any documentation requested by the trustee or bankruptcy court. The debtor has a duty to furnish all documents requested in a timely fashion.
Even if the defendant acted in a good faith manner or with a good faith belief that his act was not fraudulent, the defendant may be charged with the offense. Carelessness or inadvertence are also not defenses to the charge of bankruptcy fraud.
If the defendant is convicted of committing bankruptcy fraud he may be fined, sentenced to a prison term, or both.
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