Our Bankruptcy Fraud Division helps debtors defend themselves against charges of fraud, misrepresentation, and lying during a bankruptcy proceeding.
During the bankruptcy process, debtors are required to answer questions and provide documentation at the request of bankruptcy trustees. In some cases, if the trustee believes the debtor was being untruthful or falsified records, the debtor may face criminal charges related to bankruptcy fraud.
According to the Administrative Office of the U.S. Courts, there were over 800,000 bankruptcy filings in 2016. Despite the seemingly high number of filings, the instances of a bankruptcy debtor facing bankruptcy fraud charges were low.
Common or not, a conviction for bankruptcy fraud is a serious matter that carries potential jail time, fines, and other consequences. Hiring an experienced bankruptcy fraud attorney can give you the best shot at a positive outcome in your case.
What is Bankruptcy Fraud?
Bankruptcy fraud can come in a variety of forms. Generally speaking, the crime of bankruptcy fraud involves a debtor attempting to conceal assets or provide false information in order to defraud the bankruptcy estate.
The bankruptcy fraud statute provides a long list of potential incidents of fraud, but generally speaking, the most common types of bankruptcy fraud include:
- Bribery – Any attempt to enlist assistance from a government official to conceal assets through bribery is bankruptcy fraud. For example, a payment to the bankruptcy trustee to overlook certain real estate holdings would qualify.
- Concealment of Assets – One of the most common forms of bankruptcy fraud, concealment of assets, is any attempt to hide assets from the bankruptcy estate in order to avoid forfeiting them. For example, this can include simply failing to list assets or even transferring to other people or shell companies.
- Fraudulent Filing – The filing of a bankruptcy petition triggers the automatic stay, which protects debtors from further collection efforts in the early stages of bankruptcy. Filing repeatedly or even filing under a false name to fraudulently take advantage of the automatic stay is bankruptcy fraud.
- Lying Under Oath – There are two instances where lying in the bankruptcy is a crime: while under oath or while under penalty of perjury. You will typically only be under oath when called to testify at a hearing. Meanwhile, your bankruptcy petition is filed while swearing under penalty of perjury its claims are true and accurate.
Federal statutes Related to Bankruptcy Fraud
Under federal law, bankruptcy fraud is governed primarily by two separate statutes.
- The first is known simply as the bankruptcy fraud statute.
- The second is known generally as the concealment of assets statute.
The bankruptcy fraud statute sets outs a general outline of behavior that qualifies as bankruptcy fraud. This includes doing any of the following things with the intent to execute or conceal a scheme to defraud the bankruptcy estate:
- Fraudulently filing a bankruptcy petition;
- Filing a document in a bankruptcy proceeding; or
- Making a false or fraudulent state, claim or promise before or after the filing of the petition so long as it relates to the bankruptcy filing.
Concealment of Assets
While the bankruptcy fraud statute is general and relates mostly to the filing of documents, the statute relating to the concealment of assets has a long list of prohibited behavior, including:
- Intentionally and fraudulently hiding property of the debtor from the estate or trustee;
- Intentionally making a false statement;
- Intentionally making a false declaration or verification under penalty of perjury;
- Intentionally filing a false claim against the debtor for payment;
- Knowingly receiving any property owned by the debtor in an attempt to defraud the bankruptcy estate;
- Knowingly offering money or property as a bribe in a bankruptcy case;
- Fraudulently transferring or concealing property;
- Falsifying or destroying records in an attempt to conceal assets; or
- Intentionally withholding records relating to the property of the debtor.
While bankruptcy fraud is somewhat unique, there are a few other federal offenses that are related in some circumstances. Those often include other types of fraud that are related to assets tied up in bankruptcy proceedings.
Credit card fraud is a federal crime that involves the unlawful use of a credit card to defraud another person. This can include the unauthorized use of another’s card or fraudulently opening a credit card in the name of another. Credit card fraud can be in an issue in bankruptcy cases when debtors subsequently hide the assets they purchase through the use of the fraudulent cards.
Identity theft is the knowing transfer or use of a means of identification of another person without their consent. This can be an issue in a bankruptcy fraud case where assets are fraudulently put under the name of another. In some cases, the automatic stay can be fraudulently abused by filing a bankruptcy petition under a false name.
Mortgage fraud involves providing false information or documents to obtain a home loan or mortgage. This crime can relate to bankruptcy fraud when the debtor attempts to conceal real estate that has been obtained through fraud.
What are some of the essential and impactful cases?
Bankruptcy law, more than most other areas of law, is built almost entirely through statutes. While there are ample cases that flesh out these statutes, the statutes provide a more thorough view of the law than most other areas. There are some cases that have highlighted the purpose of the statute and the threat bankruptcy fraud poses to the entire system, however.
In Stegeman v. United States, the court highlighted the importance of bankruptcy fraud laws by explaining that fraud prevents bankruptcy courts from making an honest and fair evaluation of a debtors assets and distributing them equitably among creditors.
In United States v. Grant, the 1st Circuit went further, explaining that fraud committed by the debtor limits the ability of the trustee to make an informed decision on how to distribute assets. While a fresh financial start for the debtor is an important part of bankruptcy, it is still important to ensure creditors be treated fairly as well.
Detection and Investigation of Bankruptcy Fraud
Because all bankruptcy fraud stems from various bankruptcies, it should be no surprise that many instances of fraud are detected by the bankruptcy trustees. In fact, Chapter 13 Trustees offices have their own investigative divisions that review cases for the possibility of fraud. The Trustees can detect fraud through audits or even by receiving complaints from creditors or acquaintances of the debtor.
However, the majority of bankruptcy fraud cases are ultimately investigated by the FBI. Because bankruptcy fraud is a federal crime, the FBI typically takes the lead in investigating these cases. In some instances, the FBI will work directly with the investigators from the trustee’s office in order to build their case. In other instances, the trustees will hand over information to the FBI to allow the bureau to take the lead on the investigation.
Prosecuting Bankruptcy Fraud
Because bankruptcy fraud is a federal crime, the United State Department of Justice is ultimately in charge of handling bankruptcy fraud cases. These prosecutions are handled by the various offices of the United States Attorneys. The US Attorney’s office responsible for a specific bankruptcy fraud case will depend on where the bankruptcy fraud took place. There are 94 US Attorneys, and they each represent a federal district that corresponds with a bankruptcy court. For example, fraud committed in a bankruptcy case filed in the Southern District of Illinois Bankruptcy Court would be prosecuted by the United States Attorney for the Southern District of Illinois.
While the Department of Justice is interested in all forms of bankruptcy fraud, they are especially interested in cases that involve the concealment of large amounts of assets. Typically, cases involving a higher dollar amount of assets hidden from the bankruptcy court are prosecuted vigorously.
Statutory Penalties for Conviction of Bankruptcy Fraud
The penalties for bankruptcy fraud are serious. Because bankruptcy fraud involves the intent to defraud the bankruptcy estate, courts can be particularly harsh in their sentencing.
For starters, each count of bankruptcy fraud carries a maximum fine of $250,000. While it is rare for a judge to hand down the maximum fine, large-scale fraud can bring about fines in the five-figure range.
That amount does not include restitution, which is common in bankruptcy fraud cases.
While bankruptcy fraud is generally related to attempts to defraud the bankruptcy estate, other parties are regularly harmed in the process.
Restitution requires a convicted debtor to pay back and make whole any party the defrauded.
Finally, a conviction for bankruptcy fraud also carries a potential prison sentence of up to five years. It is common for judges in bankruptcy fraud cases to sentence a convicted debtor to a prison sentence that is short of the maximum but also include home confinement or supervised release after the end of the prison term.
Additional Consequences of a Conviction
There are a number of additional consequences for a conviction of bankruptcy fraud outside of prison time, fines, or restitution. For starters, a conviction for bankruptcy will lead to the dismissal of the underlying bankruptcy case. If the fraud was committed by a creditor in a bankruptcy case, it could lead to that creditor being barred from filing a claim or participating in any distribution of the assets of the estate. A conviction can also lead to the requirement of a large amount of community service.
Additionally, a conviction for bankruptcy fraud can disrupt your normal life. It can cost you your security clearance and potentially lead to the termination of your employment.
Finally, like with any criminal conviction, a bankruptcy fraud conviction can greatly affect your reputation. Even if you avoid prison time, a conviction will likely haunt you forever. It can make it difficult to obtain employment and even housing.
Bankruptcy Fraud in the News
Former Attorney Sentenced for Fraudulently Concealing Bankruptcy Client Assets.
Charge: Concealment of assets from the bankruptcy estate
Allegations: Concealed settlement check from trustee
In 2017, a former Florida attorney was sentenced to six months in federal prison followed by six months of house arrest for concealing assets from a bankruptcy estate. According to the Department of Justice press release, the attorney accepted a $93,255.27 settlement check on behalf of a client who was planning to file bankruptcy. The attorney prepared the client’s bankruptcy petition but failed to list the settlement as an asset, effectively concealing the money from the bankruptcy estate.
In addition to the prison sentence, the attorney as also required to pay back restitution in the full amount of the settlement check. Prior to charges being filed, this case was investigated in a joint effort by the FBI, the Florida Department of Law Enforcement, and the bankruptcy trustee. The attorney was prosecuted by the United States Attorney’s Office for the Middle District of Florida.
Illinois Couple Sentenced for Six Counts of Bankruptcy Fraud
Charge: Making false statements under penalty of perjury, making false statements under oath, falsifying records
Allegations: Concealed assets by transferring them to family members and lying about it
In 2014, Lucy J. McGill and Gary G. McGill of Eldorado, Illinois were sentenced in connection with bankruptcy fraud stemming from their 2009 bankruptcy petition.
According to the FBI press release, each defendant was sentenced to two years of probation, including 4 months of house arrest with electronic monitoring. The couple was also required to perform 20 hours of community service and pay $1,000 in fines.
The charges stem from statements the McGills made in their Statement of Financial Affairs filed with their bankruptcy petition.
- First, the statement falsely reflected that $22,000 in Lucy McGill’s account actually belonged to her sister.
- Second, the statement failed to disclose a gift of $6,800 the couple had given to their son shortly before filing. Both McGills lied under oath while giving sworn testimony regarding the money, and Lucy McGill admitted to creating fake receipts to reflect that the funds were, in fact, her sisters.
The case was investigated by the FBI and prosecuted by the United States Attorney for the Southern District of Illinois.
Colorado Doctor Pleads Guilty to Bankruptcy Fraud for Hiding Assets through Shell Companies
Charge: Concealment of assets from the bankruptcy estate
Allegations: Hid assets from the bankruptcy estate through fraudulent transfers and shell companies
In 2018, Cathleen Van Buskirk, a Boulder, Colorado doctor and surgeon, plead guilty in U.S. District Court to bankruptcy fraud. Van BusKirk was indicted in federal court on December 4, 2017, following an investigation by the FBI.
According to the Department of Justice press release, Van Buskirk perpetrated the fraud against the bankruptcy court before her filing in 2014.
Prior to filing, Van Buskirk transferred hundreds of thousands of dollars worth of property to a friend with the intention of reclaiming the property after the bankruptcy was finalized.
This property included gold, silver, a diamond ring, and nearly $50,000 in cash. Van Buskirk also pled guilty to routing over $170,000 into shell companies in an effort to conceal those assets from the bankruptcy court.
These shell companies were open in the names of other people but controlled by Van Buskirk. All told, Van Buskirk is believed to have concealed between $250,000 and $500,000 from the estate.
Former Physician Sentenced to Prison in Bankruptcy Fraud Case
Charge: Making false statements in a bankruptcy case
Allegations: Lied about embezzling from grandmother’s estate on a bankruptcy petition
In 2016, Lynn Y. Zoiopoulos of Rockford Illinois was sentenced to 30 months in prison upon pleading guilty making false statements in a bankruptcy case. The former physician was also ordered to pay $858,765.68in restitution and faces six months of supervised release after the prison sentence is completed.
According to the DOJ press release, Zoiopoulos began defrauding her grandmother’s estate long before her bankruptcy filing by embezzling from the estate accounts. In August of 2009, Zoiopoulos filed a bankruptcy petition declaring under the penalty of perjury that the statements within the petition were correct.
However, the petition did not reflect the assets embezzled from her grandmother’s estate. Zoiopoulos eventually admitting to knowingly perpetuating the fraud and misleading the bankruptcy estate about her interests in the stolen assets.
Zoiopoulos also admitted to fraudulently transferring over $35,000 to her sister to keep up the charade that there was still money in the estate accounts. The case was investigated by the FBI and prosecuted by the United States Attorney for the Northern District of Illinois.
Las Vegas Realtor Sentenced for Sophisticated Bankruptcy Scheme
Charge: Filing fraudulent petitions, making false statements under penalty of perjury
Allegations: Avoided foreclosure on a series of properties by repeatedly filing fraudulent bankruptcy petitions in order to trigger automatic stay protections.
In 2016, a Las Vegas realtor with 12 properties spread across Nevada and Texas was sentenced after pleading guilty to her role in an elaborate bankruptcy fraud scheme. Barbara Jean Dennis, of Las Vegas, Nevada, was sentenced to 11 months in prison followed by two years of supervised release.
According to the FBI press release, she was also fined $10,000 and required to pay restitution in the amount of $83,000. Dennis was also barred from engaging in the real estate business in any way during the term of her supervised release.
Between August 2009 and November 2010, Dennis filed five separate bankruptcy petitions in the District of Nevada and the Southern District of Texas. During each of the filings, Dennis would avoid her mortgage creditors while still collecting rent on her properties. In one case, Dennis used a fake name while in another she failed to list her previous bankruptcies.
Need a Bankruptcy Fraud Attorney? Call Us Now
Going through the bankruptcy process is hard enough. But facing criminal charges for bankruptcy fraud can greatly impact your finances, your reputation, and your freedom.
Unlike many potential criminal charges, bankruptcy fraud carries the burden of additional oversight. While bankruptcy fraud can be investigated by law enforcement like any other crime, bankruptcy fraud is unusual in that it can also be investigated by the U.S. Trustee’s office. Dual investigations can mean twice as much questioning and interrogation.
What’s more, the Trustee’s office frequently works with the FBI, meaning any discrepancy between your answers will be picked apart. Having an experienced attorney by your side to guide you through questioning can help keep you out of trouble.
An Attorney Can Help You Negotiate
If you are charged with bankruptcy fraud, an attorney can also help by negotiating with prosecutors. In some cases, an attorney may be able to negotiate for a lesser offense or even for the dismissal of charges.
Ultimately, if a case is unable to be resolved through negotiation, you will have the right to a trial to defend yourself. Having an attorney present to represent you and develop your trial strategy is a key component of achieving a positive outcome.
Protect yourself and your future by hiring an experienced bankruptcy fraud attorney
The attorneys in our Bankruptcy Fraud Division have the knowledge and experience to provide you with a strong defense. In many cases, the allegations that stem from bankruptcy proceedings can spill over into state court as well. Our attorneys are prepared to represent you vigorously at every level.
If you or a loved one are facing bankruptcy fraud charges, contact the attorneys with our Bankruptcy Fraud Division today for a free consultation.
 Stegeman v. United States, 425 F.2d 984, 986 (9th Cir. 1970)
 United States v. Grant, 971 F.2d 799 (1st Cir. 1992)