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Bankruptcy Fraud Crimes

According to Black’s Law Dictionary, bankruptcy fraud is a “fraudulent act connected to a bankruptcy case; [especially] any of several proscribed acts performed knowingly and fraudulently in a bankruptcy case, such as concealing assets or destroying, withholding, or falsifying documents in an effort to defeat bankruptcy-code provisions" (686, 8th ed. 2005). Specifically, 18 U.S.C. § 151 et seq. (2005) outlines the penal provision for bankruptcy fraud. Additionally, under 18 U.S.C. §§ 1956 and 1957, individuals prosecuted for bankruptcy fraud will frequently be prosecuted for money laundering as well. Some examples include United States v. Dennis, 237 F.3d 1295 (11th Cir. 2001); United States v. Butler, 211 F.3d 826, (4th Cir. 2000); United States v. Ladum, 141 F.3d 1328 (9th Cir. 1998); United States v. Levine, 970 F.2d 681 (10th Cir. 1992).

18 U.S.C. § 151 (2005).

Section 151 simply makes it clear that "debtor" refers to a "debtor concerning whom a petition has been filed under title 11." Title 11 contains the bankruptcy provisions in the United States Code.

18 U.S.C. § 152 (2005).

The Crime
Under section 152, it is a crime for a person to

  • knowingly and fraudulently conceal any property belonging to the estate of a debtor from
    • a custodian,
    • trustee,
    • marshal, or other officer of the court charged with the control or custody of property, or,
    • in connection with a case under title 11, from creditors or the United States Trustee; 18 U.S.C. § 152(1) (2005);
  • knowingly and fraudulently make a false oath or account in or in relation to any case under title 11; id. § 152(2) (2005);
  • knowingly and fraudulently make a false declaration, certificate, verification, or statement under penalty of perjury, in or in relation to any case under title 11; id. § 152(3) (2005);
  • knowingly and fraudulently, in a personal capacity or as or through an agent, proxy, or attorney,
    • present any false claim for proof against the estate of a debtor, or
    • use any such claim in any case under title 11,; id. § 152(4) (2005);
  • knowingly and fraudulently receive any material amount of property from a debtor after the filing of a case under title 11, with intent to defeat the provisions of title 11; id. § 152(5) (2005);
  • knowingly and fraudulently give, offer, receive, or attempt to obtain any money or property, remuneration, compensation, reward, advantage, or promise thereof for acting or forbearing to act in any case under title 11; id. § 152(6) (2005);
  • in a personal capacity or as an agent or officer of any person or corporation, in contemplation of a case under title 11 by or against the person or any other person or corporation, or with intent to defeat the provisions of title 11, knowingly and fraudulently transfer or conceal any of his property or the property of such other person or corporation; id. § 152(7) (2005);
  • after the filing of a case under title 11 or in contemplation thereof, knowingly and fraudulently conceal, destroy, mutilate, falsify, or make a false entry in any recorded information (including books, documents, records, and papers) relating to the property or financial affairs of a debtor; id. § 152(8) (2005); or
  • after the filing of a case under title 11, knowingly and fraudulently withhold from a custodian, trustee, marshal, or other officer of the court or a United States Trustee entitled to its possession, any recorded information (including books, documents, records, and papers) relating to the property or financial affairs of a debtor. Id. § 152(9) (2005).

The Punishment
A violaton of section 152 can be punished by

  • a fine, imprisonment for not more than 5 years, or both. 18 U.S.C. § 152 (2005).

Case Law Interpreting Section 152
When the government brings a criminal bankruptcy fraud charge against a defendant, it does not need to present evidence regarding the substance of the federal bankruptcy laws to prove the intent to defeat bankruptcy laws. See United States v. Gibbs, 594 F.2d 125, 127 (5th Cir. 1979). To be convicted under section 152(1), (3), and (7), the "defendant must be proven to have acted 'knowingly and fraudulently.'" United States v. Hughes, 401 F.3d 540, 545 (4th Cir. 2005). Furthermore, "to support a conviction for making a false oath in bankruptcy under [section 2] the prosecution is required to establish"

  1. the existence of bankruptcy proceedings,
  2. that a false statement was made in the proceedings under penalty of perjury
  3. as to a material fact
  4. and that the statement was knowingly and fraudulently made. United States v. Cutter, 313 F.3d 1, 4 n.4 (1st Cir. 2002).

Under certain other provisions of section 152, in order to convict a defendant on a count of bankruptcy fraud, the jury is required to find beyond reasonable doubt four things:

  1. that the defendant was adjudicated as bankrupt
  2. that the defendant owned a cash receipt
  3. that the defendant had concealed or aided and abetted the concealment of cash receipts from bankruptcy trustees; and
  4. that he had done so knowing that a trustee had been appointed and he had the intent to defraud a creditor. United States v. Guiliano, 644 F.2d 85, 87 (2d Cir. 1981) (addressing an unspecified violation of section 152).

Above all, it is an essential element of a violation of section 152 that the concealment is made knowingly and fraudulently, and to establish such fraud, the government must show a false representation of material fact, made with knowledge of the statement's falsity and with intent to deceive. United States v. Beery, 678 F.2d 856, 866 (10th Cir. 1982).

There is some debate whether it is "improper or even illegal for a debtor to offer or for a creditor to receive any consideration for the dismissal of a complaint objecting to discharge." See In re Taylor, 190 B.R. 413, 416 n.3 (1995) (citing 18 U.S.C. § 152(6)).

Finally, please note that there is no right to a civil cause of action under section 152 for filing a false proof of claim in a bankruptcy proceeding. Heavrin v. Boeing Capital Corp., 246 F. Supp. 2d 728, 731 (W.D. Ken. 2003).

18 U.S.C. § 157 (2005).

Section 157 has also been amended, effective 180 days after April 20, 2005. P.L. 109-8, 119 Stat. 103. The following is how section 157 should read after the amendment becomes effective:

  • A person who, having devised or intending to devise a scheme or artifice to defraud and for the purpose of executing or concealing such a scheme or artifice or attempting to do so--
    • (1) files a petition under title 11, including a fraudulent involuntary bankruptcy petition under section 303 of such title;
    • (2) files a document in a proceeding under title 11, including a fraudulent involuntary bankruptcy petition under section 303 of such title; or
    • (3) makes a false or fraudulent representation, claim, or promise concerning or in relation to a proceeding under title 11, including a fraudulent involuntary bankruptcy petition under section 303 of such title, at any time before or after the filing of the petition, or in relation to a proceeding falsely asserted to be pending under such title,
  • shall be fined under this title, imprisoned not more than 5 years, or both.

Case Law Interpreting Pre-Amendment Section 157
In one case interpreting section 157, the defendant promised to obtain refinancing on several homes, misidentified himself to conceal his involvement, falsely informed the homeowner that her home had not been foreclosed on, falsely listed a homeowner as a landlord, formed shell companies for the sole purpose of filing bankruptcy, facilitated invalid partial conveyances, and filed bankruptcy petitions containing false information. United States v. Daniels, 247 F.3d 598, 600-01 (5th Cir 2001). This evidence was more than sufficient to convict the defendant under section 157.

Furthermore, section 157 is worded in such a way as to make "attempted bankruptcy" under this section arise only in the unusual situation of the unsuccessful attempt to file the bankruptcy petition itself. United States v. Desantis, 237 F.3d 697, 613-14 (6th Cir. 2001). In other words, an unsuccessful scheme to defraud creditors of a given amount of money will not constitute a violation of 18 U.S.C. § 157(1). Id. at 613. The elements of a violation of section 157(1) that need to be proven are, therefore:

  1. the existence of a scheme to defraud or intent to later formulate a scheme to defraud and
  2. the filing of a bankruptcy petition
  3. for the purpose of executing or attempting to execute the scheme. Id.

The crime is completed upon the filing of the bankruptcy petition when the filing is accompanied by the other two defined circumstances. Id

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