18 U.S. Code § 157 - Federal Bankruptcy Fraud Law
Bankruptcy laws allow people and businesses to get court protection from their creditors and receive full or partial debt relief when they cannot pay all their debts. The rules are designed to protect someone who is overwhelmed with massive debt.
Bankruptcy is a legal process under federal laws where debtors who are financially unable to pay their obligations and will not be able to do so in the future can start over by discharging their debts. The creditors who loaned them money are also protected through the equitable distribution of the debtor's remaining assets.
The federal bankruptcy statutes encourage transparency in the proceedings to ensure that a significant portion of the debtor's estate will be paid to the unpaid creditors.
However, suppose you abuse the provisions in the law by filing bankruptcy dishonestly for fraud or unfair advantage. In that case, it could be considered a federal offense under 18 U.S.C. 157, which prohibits making false statements or representations intending to defraud in the bankruptcy process.
In other words, if you deliberately abuse the provisions in the law by making false statements on a bankruptcy filing by concealing or transferring assets to prevent distribution to creditors, you will likely face federal bankruptcy fraud charges.
Some people decide to attempt to abuse the system through bankruptcy fraud. If you have been accused of this offense, you could face harsh legal consequences if convicted, including fines and prison time. Our federal criminal defense attorneys will look at this law below.
What is Bankruptcy Fraud?
Bankruptcy fraud is defined under Title 18 U.S. Code 157, which makes it a federal offense to knowingly file a bankruptcy petition or related document to defraud creditors or the court.
It includes other types of fraudulent conduct related to bankruptcy, such as making false statements, destroying documents, and hiding assets. The prosecution of bankruptcy fraud cases often includes allegations that someone:
- started a bankruptcy proceeding with the intent to commit fraud;
- filed a document in a bankruptcy court to commit fraud; or
- made fraudulent representations related to a bankruptcy petition.
For federal prosecutors, the main issue in a bankruptcy fraud case is whether or not the defendant had fraudulent intent when they filed, which means their actions were intentional, such as making claims, orally or in writing, that they knew they were misleading.
Prosecutors must be convinced that the person reading the bankruptcy claim would be deceived and persuaded to make a decision that would benefit the person making the false statements.
What Are Some Examples?
Hiding assets is the most common example of bankruptcy fraud. Once you file, you must disclose your assets to the court, including cash in bank accounts, real estate holdings, investments, and property.
During bankruptcy, courts will use the assets to decide how much of your debt you can pay and distribute them to creditors. Unfortunately, some people attempt to hide their assets by putting accounts under the names of relatives, creating fake businesses, or using offshore accounts.
Hiding the value of your assets is another common form of bankruptcy fraud. Accurately declaring the value of your assets is essential. You have to list the fair market value of all your assets, but some will undervalue them to pay less to creditors.
Making false statements or representations occurs when you intentionally lie to the bankruptcy trustee or creditors on your bankruptcy petition or related documents, such as giving incorrect information about your income, expenses, debts, assets, or business interests.
Bankruptcy petition mills are businesses that assist people in filing fraudulent petitions and will charge a hefty fee to help them hide assets and transfer their property. In addition, they sometimes encourage people to file for bankruptcy multiple times to delay or avoid repaying debts.
What Are the Related Federal Laws?
- 18 U.S.C 152 – conceal assets, false oaths, bribery;
- 18 U.S.C 153 - embezzle against the estate;
- 18 U.S.C 154 - adverse interest of officers;
- 18 U.S.C 155 - fee agreements in title 11 receiverships;
- 18 U.S.C 156 - knowingly disregard the bankruptcy law.
What Are the Penalties for 18 U.S.C. 157?
The penalties for bankruptcy fraud will always depend on the severity of the crime, and the imposed sentence can dramatically vary from one case to the next. The following factors will determine penalties:
- Applying the United States Sentencing Guidelines;
- Factors related to the defendant's history, character;,
- Policy considerations described in 18 U.S.C. § 3553(a);, and
- The sentencing court's broad discretion.
A felony conviction carries up to 5 years in the Federal Bureau of Prisons and a fine of up to $250,000. However, as noted, federal judges have broad discretion to impose sentencing below these guidelines after consideration of mitigating factors, downward departures, and criminal record.
What Are the Defenses for 18 U.S.C. 157?
Contact us for an initial case consultation if you are under a criminal investigation or have already been indicted for 18 U.S.C. 157 bankruptcy fraud.
One of the primary challenges for prosecutors in bankruptcy fraud cases is proving the crucial element of intent. Recall that the statute says you can only be guilty of bankruptcy fraud for "having devised or intending to devise a scheme to defraud..."
Perhaps we can make a reasonable argument from the evidence that you didn't have any fraudulent intent when you filed for bankruptcy. Maybe when you filed the paperwork, you unintentionally listed inaccurate information rather than making deliberate false statements,
Perhaps you should have included a bank account or information about a property with partial ownership. In other words, if the prosecutors can't prove you intended to defraud, you can't be convicted under this statute. In addition, bankruptcy fraud has a statute of limitations of five years.
Perhaps we can negotiate with the prosecutor, prefiling for a favorable outcome, but are prepared to take the case to a jury trial if necessary.
Eisner Gorin LLP is located in Los Angeles, California. We provide legal representation across the United States on federal matters. You can contact us for an initial case evaluation via phone or the contact form.