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U.S. bankruptcy laws provide for the development of a plan that allows a debtor, who is unable to pay his creditors, to resolve his debts through the division of his assets among his creditors. Bankruptcy fraud is committed when individuals and corporations conceal and misstate assets, mislead creditors, and illegally pressure bankruptcy petitioners during a bankruptcy proceeding. Bankruptcy laws can be found in Title 11 of the U.S. Code. Criminal sanctions can be found in Title 18 of the U.S. Code, Section 152 and Section 157.
The IRS Criminal Investigation’s Bankruptcy Fraud Program investigates bankruptcy fraud cases and, if necessary, recommends some of those cases for prosecution by the Department of Justice.
In 2006, the IRS initiated 32 bankruptcy fraud investigations. Twenty-four were prosecuted and ten sentenced. The average sentence was 29 months in either federal prison or another form of detention.
According to the United States Bankruptcy Court, bankruptcies are steadily increasing and reached 1.7 million in fiscal year 2003. The increasing number of bankruptcy petitions filed has been accompanied by a correlative increase in bankruptcy fraud. In fact, the Department of Justice estimates that 10 percent of all bankruptcy petitions contain some elements of fraud.
In one example from December, 2006, two Milwaukee, WI-based attorneys were sentenced to prison for conspiracy, bankruptcy fraud, and money laundering for hiding hundreds of thousands of dollars while pursuing Chapter 7 bankruptcy, which petitions the court to liquidate the debtor’s non-exempt property. Ronald Arthur received a 54 month prison sentence and his wife, Mary, was sentenced to 12 months and one day in prison. Evidence at trial revealed that the Arthurs conspired to conceal assets, including bank accounts in the names of shell corporations, from the bankruptcy trustee. In furtherance of the conspiracy, Ronald Arthur made false statements while testifying during bankruptcy proceedings and failed to disclose that he was earning substantial income as a lawyer/real estate consultant.
Those convicted of bankruptcy fraud face fines, imprisonment of no more than five years, or both. If you are being investigated for bankruptcy fraud, seek the advice of an experienced bankruptcy fraud attorney right away.