What is a bankruptcy fraud?

18 USC Section 157 provides for a criminal fine, imprisonment of up to five years, or both, for any 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” files a bankruptcy petition (including a fraudulent involuntary petition), files a document in a bankruptcy case, or makes a false or fraudulent representation, claim, or promise in or in relation to a bankruptcy case. An essential element of a bankruptcy fraud is a requirement of proof beyond a reasonable doubt of a specific intent to defraud.

This crime does not apply to a person who makes a representation on a financial statement and then subsequently files a bankruptcy case, so long as the debtor at the time of this representation, has not planned to file bankruptcy, as part of the scheme in connection with the misrepresentation.
US trustees refer bankruptcy matters to US attorneys’ office for investigation and possible prosecution of bankruptcy crimes.

BAPCPA created a new 18 USC Section 158 to explicitly charge US attorneys and the Federal Bureau of Investigation with “primary responsibility” for investigating bankruptcy crimes, as well as abusive practices of creditors in relation to reaffirmation agreements. Furthermore, the US Department can also intervene asking many questions to uncover any fraud during your 341 meetings. Also, trustee can do some digging by sending his own investigator to find out the hidden assets.


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