Bankruptcy fraud is a white-collar crime. It can occur in a variety of different ways. Violations run the gamut, from concealing assets, to intentionally falsifying forms, to filing or using inaccurate information of others, to bribing a trustee appointed by the courts. These actions usually occur in tandem with identity theft, mortgage fraud, money laundering, and public corruption.
Of the violations listed above, the most common by far is deliberately concealing assets under 18 U.S.C. § 152. This is a specific intent crime. In other words, the debtor’s motive to conceal assets must be intentional. If it was merely an oversight, then it is not criminal. The line between criminal and civil is very thin. Indeed, it does not take much for a case to pass quickly from a civil dispute about whether the debtor owns certain property to a “you better hire a criminal defense attorney.”
Speaking of attorneys, attorneys representing debtors are not immune from prosecution. As a matter of fact, attorneys are often times the target of investigations. Indeed, FBI agents never miss out on the opportunity to ask a debtor (who might now be a “suspect”), “What did your lawyer tell you?”
To avoid being ensnared in the coils of the criminal justice system, an asset or possible asset should always be disclosed — even if there is doubt as to whether it must be included in the bankruptcy estate. Of course, it goes without saying that the love a debtor has for a particular asset and his unwillingness to part with it doesn’t justify a failure to disclose it, unless he loves it so much that he is willing to spend a few years at Club Fed in order to keep it.
How does one conceal an asset? Very simply, by not listing it in schedules A or B. As discussed above, an innocent mistake isn’t criminal. But if it borders on willful or intentional conduct, then the conduct inches ever so closer to the criminal end of the spectrum.
How does the government prove the concealment of assets? It’s not hard. The government merely has to prove ownership and that can be done through public records.
If you thought that 18 U.S.C. § 152 was a trivial offense with minor penalties, you’d be sadly mistaken. On the contrary, it is a felony punishable by fines and imprisonment of up to five years.
Here are some practical pointers for bankruptcy attorneys to avoid ever becoming a target of a criminal investigation. Be sure to quiz your clients to make sure that what they are telling you is accurate and complete and that they are not withholding anything. Account for all of your client’s property on the respective schedules.
The point to remember is that property of the estate is at the top of the “hit parade” in the criminal law statutes concerning bankruptcy. Be guided accordingly!