In simple terms, bankruptcy is the legal process used by a business or individual in order for that party to be discharged of all debts based on an inability to pay. There are a variety of different types of bankruptcy, but each will have similar definitions regarding what types of action constitute bankruptcy.
Bankruptcy law allows for the development of a plan in order for a debtor, who is unable to pay back his creditors, to resolve his debts by dividing his assets among his creditors. Under this method of division, creditors’ interests are considered and the assets will be allocated in a somewhat fair and equitable manner.
In April 2005, the Bankruptcy Prevention and Consumer Protection Act was passed and has led to many reforms in the area of bankruptcy law. The Act also expands the responsibilities of the U.S. Trustees Program to incorporate supervision of random and targeted audits, certification of entities to provide credit counseling, certification of entities that provide financial education, and more oversight of small business reorganization cases.
Along with the topic of bankruptcy, comes the issue of bankruptcy fraud. In the United States, bankruptcy fraud is considered to be a federal crime. This type of fraud is considered to be a white-collar crime that takes four general forms.
- Debtors conceal assets to avoid having to forfeit them;
- Individuals may purposely file false or incomplete forms;
- Individuals may file multiple times through submitting either false information or real information in a number of states; and
- Individuals may bribe a court-appointed trustee.
It is often the case that an individual will utilize one of these four types of bankruptcy fraud in conjunction with another criminal offense. These other offenses may include identity theft, mortgage fraud, money laundering, or public corruption.
While there are a variety of ways a person can commit bankruptcy fraud, the most common offense will include some concealment of assets. Because of the fact that creditors may only liquidate those assets which are listed by the debtor, the debtor can keep assets that are not revealed to the creditor. In some situations, a party may transfer these concealed assets to friends, relatives, or other individuals in the hopes that the asset will be remain hidden. This act is considered a type of bankruptcy fraud and it raises the risk and costs associated with lending. This means that the repercussions of this unlawful act will trickle down to other individuals who decide to borrow money.
When an individual or business is charged with bankruptcy fraud, they will likely face federal charges. Federal prosecutors are capable of bringing federal charges against a party in accordance with 18 U.S.C. § 151. Federal prosecutors are required to prove fraud has occurred by showing that the defendant knowingly and fraudulently made a misrepresentation of material fact. Bankruptcy fraud carries severe penalties that include a heavy fine and/or up to five years in prison.
If you have questions related to bankruptcy law and procedure, contact the professionals at 702 Defense. It is in your best interest to align yourself with competent attorneys who are experienced in this area of law and will ensure that your rights are protected.