Bankruptcy is an old idea. In one form or another the process has been around since ancient Greece, and as early as the 16th century in England. In the United States, the bankruptcy process is used to resolve obligations that a debtor is unable to pay. American bankruptcy is governed by Title 11 of the U.S. Code (aka the Bankruptcy Code) and the judiciary’s Federal Rules of Bankruptcy Procedure.
According to the U.S. Trustee Program (USTP), in 2016, 764,214 bankruptcy cases were filed in the districts covered by the USTP. Since 2011, the numbers of filings have been decreasing and expected to continue falling. The USTP core program combats bankruptcy fraud and abuse not only from debtors who try to conceal assets, evade obligations, or other violations but also, from abuse by attorneys, other preparers of petitions, creditors, and others. Since the program started tracking results in 2003, the USTP has taken more than 700,000 civil enforcement actions with a financial impact of almost a $17.3 billion.
Bankruptcy fraud is a white-collar crime. The U.S. Department of Justice's Bankruptcy Trustee Manual describes bankruptcy fraud perpetuators as anyone who knowingly and intentionally commits any of the following violations:
- Conceals property or other assets from the bankruptcy proceedings.
- States false oath, declaration, account, or statement in relation to a case.
- Makes false proof of claim.
- Receives a material amount from a debtor with the intention of defeating the bankruptcy code.
- Conceals or transfers property with the intention of defeating the bankruptcy code.
- Conceals, destroys, falsifies, or mutilates documents relating to the bankruptcy proceedings or affairs.
- Conceals or withholds documents from a trustee or other officer of the court.
Bankruptcy fraud is a serious violation. The penalty for a single criminal act of bankruptcy fraud is five years in prison or a $250,000 fine or both. Bankruptcy schemes include the following activities:
- The concealment of assets.
- Secretly selling and transferring assets below market value.
- Petition mills, in which unqualified individuals who perform low-quality filing services, instruct debtors to file without an attorney and steal debtors’ assets by having the debtor transfer them to a fraudster.
- Multiple filing schemes where fraudsters use many fake identities in different states to incur debt to acquire assets and then file bankruptcy.
- Bust-out and bleed-out schemes in which fraudsters establish businesses with no intention of paying vendors.
If in a situation where you believe you have been a victim of bankruptcy fraud or wish to report bankruptcy fraud, contact the Office of the U.S. Trustee Program.
U.S. Trustee Program. (2016). Annual Report of Significant Accomplishments: Fiscal Year 2016. Retrieved on November 1, 2018, from https://www.justice.gov/ust/file/ar_2016.pdf/download