Avoid Jail Time; Don't Commit Bankruptcy Fraud

The majority of criminal practices in bankruptcy cases involve the concealment of assets by debtors.  A debtor may conceal assets on his or her bankruptcy petition by:  a) failing to disclose assets;  b) falsifying information; c) intentionally providing incomplete information.  To avoid liquidation by a trustee, a debtor may fail to disclose an asset, understate the value of an asset or transfer an asset to a friend or relative without disclosing the transaction.

Under the U.S. Bankruptcy Code, in order to receive the protection of the court and a discharge in bankruptcy, a debtor has a duty to disclose all of his or her assets and certain transfers of property on his or her bankruptcy petition.  In a Chapter 7 bankruptcy, the trustee assigned to the case has a duty to liquidate any non-exempt assets and void any transfers of assets for the benefit of creditors.  In a Chapter 13 bankruptcy, the trustee has a duty to calculate the non-exempt equity in assets in order to ensure that creditors are receiving as much as they are entitled to in the plan of reorganization.  If assets or transfers of assets are not fully disclosed, then the trustee is unable to fulfill the assigned responsibilities.

In an effort to maintain the integrity of the bankruptcy system, the U.S. Department of Justice, through its Trustee Program, conducts criminal investigations to prevent bankruptcy fraud and abuse.  The Internal Revenue Service also prosecutes bankruptcy fraud cases.  According to the IRS, in 2011 its Criminal Investigation Bankruptcy Fraud Program inititated 25 investigations resulting in the conviction and sentencing of 23 debtors.  The average term of sentence actually served was 32 months.  Under federal law, a debtor convicted of bankruptcy fraud faces imprisonment of up to five years, a fine of up to $250,000 or both. 

These legal consequences should serve as a deterrent and demonstrate the need for debtors contemplating bankruptcy to consult with an experienced bankruptcy attorney to assist them through a bankruptcy proceeding.  The rules here are very simple: 

1.  Consult with an experienced and qualified Chicago bankruptcy attorney,

2.  Tell them EVERYTHING.  Even if you do not hire the attorney and do not file a bankruptcy, your discussion is protected by attorney/client priviledge.

3.  Listen to the advice they give you. 

If any attorney tells you that it is not necessary to list an asset, tells you to "keep that information to yourself" or tells you "what the court doesn't know won't hurt 'em", run away!  You are the one who will do the time and pay the fine.  If you want straight advice in a free consultation, call the experienced bankruptcy attorneys at Ledford & Wu.

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