Bankruptcy Fraud
I always find it odd and almost humorous when people ask me “how will the court know I own a piece of property?” “This telephone call is confidential isn’t it?” “You don’t have to tell the court that I own that property, do you?”
You get the picture. Someone is calling me asking about ways I can help the person get out of debt. I start asking some questions to ascertain a general idea of the person’s income, assets and debts, as I always do, so I can begin to offer some solutions. The client tells me they own a piece of investment real estate and it has equity over and above what I can protect in Chapter 7. I begin to discuss Chapter 13 options to protect the property from creditors when this prospective client stops me and asks me the questions I mentioned above.
While there is attorney-client privilege in legal representation, that privilege does not extend to information that is going to be public as part of a bankruptcy filing. Of course, if the person never actually files a case in court, the privilege would apply, but once the case is filed, the debtor is subjecting himself to the jurisdiction and rules of the court. This means if a person wants relief from their debts, they must play by the rules. The rules of the court require the debtor to testify, under oath, that the information on the schedules is true and accurate.
More importantly, people must understand that attorneys are officers of the court and that we lawyers have obligations to the Court and to the public at large not to assist in criminal activity, not to perpetuate a fraud on the court, etc… Lawyers can sometimes be put in very difficult situations when they know their client is trying to commit a crime, yet they want to preserve confidentiality. Most decisions and ethical opinions I’ve read indicate that the lawyer must make a “noisy” withdrawal in this situation. This means that your lawyer can’t represent you anymore and must seek the court’s permission to withdraw. The Court, before granting permission, is going to want an explanation from the attorney about the withdrawal. Judges are very intelligent people, they can read between the lines even if the attorney doesn’t come out and say “my client is committing a crime.”
It is a federal felony to commit bankruptcy fraud and this includes lying on the bankruptcy petition and schedules. Bankruptcy fraud carries a maximum penalty of $250,000 in fines, 5 years in jail and the debtor would also not receive a discharge of debts. Also, the government might prosecute a debtor for destruction, falsification of records in Federal investigations and bankruptcy and that carries a maximum sentence of 20 years. Depending on how many acts of fraud the debtor commits, he can also be prosecuted under the RICO (Racketeer Influenced and Corrupt Organizations) statutes. The bottom line: DON’T DO IT! It’s not worth the penalties.
The IRS and FBI both assign agents to investigate bankruptcy filings. The US Trustee’s office is a branch of the Department of Justice. Believe me, there are paper trails of property ownership that these organizations have more than enough resources to find out about.
You should be open, honest, and truthful about all of your income, assets and debts. Tell your attorney the truth so the attorney can give you the proper advice for your situation and review your paperwork for accuracy. I admit that I get a bit taken aback by these folks and whenever someone asks me these types of questions the hair on the back of my neck stands up. The client is not only putting themselves in jeopardy, but they are also putting my law license in jeopardy, so it’s just not a good situation to be in.
The US Trustee’s office, in fact, circulates a publication among the different branch offices congratulating their litigation teams and investigators who discover and successfully prosecute fraud! They brag about it. They relate stories of debtors who they’ve put away in federal penitentiaries for a long time and I just find myself saying: “Who would try to do such a thing and how could they not realize the power of the federal government and the multi-billion dollar creditors they owe to find out about this stuff?” Anyway, I hope you get the point…
