Criminal Bankruptcy Fraud
Bankruptcy fraud is a federal crime punishable by a fine, or by up to five years in prison, or both. The federal law defines actions constituting criminal bankruptcy fraud in Sections 151 through 158 of Title 18 of the United States Code. These laws apply to any proceeding, arrangement or plan under the Bankruptcy Code. The purpose of creating and classifying these crimes relating to bankruptcy fraud is to preserve honest administration in bankruptcy proceedings and to ensure the distribution to creditors of as large a portion of the debtor’s estate as possible.
Ultimately, bankruptcy fraud is an act of dishonesty in connection with a bankruptcy case. Examples of bankruptcy fraud include:
- filing bankruptcy documents for a fraudulent purpose;
- making a false or fraudulent representations in connection with a bankruptcy case for a fraudulent purpose;
- knowingly and fraudulently concealing property of the bankruptcy estate; and
- knowingly and fraudulently concealing, destroying, mutilating, falsifying, or making a false records relating to the property or financial affairs of the debtor.
Bankruptcy crimes are prosecuted by the United States Attorney, typically after the case has been referred by the U.S. Trustee, an interim bankruptcy trustee, or by a bankruptcy court judge. In some cases a “tip” may be received from an outside source that may lead to prosecution. Bankruptcy fraud may also result in criminal prosecution in state courts for violations of state law.
Report of Violations of Bankruptcy Fraud
Section 3057(a) of Title 18, United States Code, requires a judge, receiver or trustee to report to the U.S. Attorney whenever there is reason to believe that criminal bankruptcy fraud has occurred. Bankruptcy fraud may also be reported by any individual by emailing the following information to USTP.Bankruptcy.Fraud@usdoj.gov:
- Name and address of the person or business you are reporting.
- The name of the bankruptcy case, case number, and the location of where the case was filed.
- Any identifying information regarding the individual or the business.
- A brief description of the alleged fraud, including how the fraud was discovered and all supporting documentation.
- Identify the type of asset that was concealed and its estimated dollar value, or the amount of any unreported income, undervalued asset, or other omitted asset or claim.
- Your name, address, telephone number, and email address (you are not required to identify yourself, though it is often helpful to do so if questions arise).
Upon receipt of this report, the U.S. Attorney determines whether an investigation should be commenced. Agents from the Federal Bureau of Investigation (FBI) generally investigate cases of bankruptcy fraud, but other agencies such as state prosecutors and police or the Internal Revenue Service may also become involved. The U.S. Attorney has final say on whether an investigation from criminal bankruptcy fraud is commenced.