Bankruptcy Fraud is a Federal Crime

Bankruptcy fraud is a federal felony that carries a sentence of up to five years in prison and/or a fine of up to $250,000. Some examples of bankruptcy fraud include concealing assets, intentionally filing false or incomplete forms, and providing false information while under oath. Often bankruptcy fraud is accompanied by other serious offenses like identity theft, mortgage fraud, tax fraud, or money laundering.

Bankruptcy fraud can become very complex and may involve the IRS or FBI. The penalty may involve many years of incarceration when coupled with other criminal charges. Other cases are relatively simple like a recent case in Pennsylvania:

A husband and wife were each sentenced to fifteen days in prison by U.S. Magistrate Judge J. Andrew Smyser in the Middle District of Pennsylvania after finding contempt of court for untruthful conduct in their joint bankruptcy case.

According to a press release issued by the U.S. Attorney's Office, Tammy Beecher and Wyatt Beecher filed a chapter 7 bankruptcy petition in May 2007. The filing stated that the Tammy Beecher had no income and that neither debtor operated a business within the previous six years. In fact, the Beechers owned a family business, "Fun 4 Kids Entertainment." Only after the Beecher’s were presented with a coupon for $5 off any party, and reminded by the chapter 7 trustee they signed the bankruptcy petition under penalty of perjury, did the Beecher’s admit that they owned and operated the business.

Bankruptcy fraud can be reported by ex-spouses, banks, and even your neighbors. The Executive Office of the United States Trustees (EOUST) recently launched an internet site that will allow the public to report suspected instances of bankruptcy fraud to the EOUST at http://www.usdoj.gov/ust/eo/fraud/index.htm.

The moral here is: tell your bankruptcy attorney everything. Your attorney can work with you to protect your assets and avoid criminal charges, but only if you tell all. The information you share with your attorney is shielded by attorney-client privilege, a powerful and time-honored protection. While your attorney cannot counsel or assist you in an illegal act, there are many legal options available in every case. If you are in over your head, speak with an attorney and understand your legal options.

The Perils of a DIY Bankruptcy

Federal law guarantees open access to the courts and permits self representation in lawsuits, including bankruptcy proceedings. However, the most important question is not “can you,” but “should you” represent yourself in a bankruptcy case.

Proceeding pro se (Latin meaning “for himself”) in a bankruptcy case is like navigating a mine field while blindfolded. Is it possible to be successful? Sure! Will your bankruptcy case blow up? Probably. Books and internet resources simply cannot substitute for competent legal advice. Below are a few reasons why a pro se bankruptcy is a bad idea:

Reason 1: The Federal Bankruptcy Code is complex.

Reason 2: The Federal Rules of Bankruptcy Procedure are complex (and changing as of December 1, 2009).

Reason 3: The bankruptcy court’s local rules are complex.

Reason 4: The applicability of state law to federal bankruptcy law is complex, including state exemption laws, state criminal laws, and state collection laws.

Reason 5: The bankruptcy trustee will examine your case more closely since you are not represented by counsel. The trustee will likely put you at the end of the 341 meeting docket to have extra time to review your bankruptcy case and ask questions.

Reason 6: Most skilled bankruptcy attorneys will not step into the middle of a pro se case when things go wrong.

Reason 7: Are you really qualified to answer important questions, like: “When should you file?” “What chapter should you file?”

Reason 8: Most courts will not allow a pro se bankruptcy debtor to file documents electronically through the court’s internet ECF system.

Reason 9: You can be audited by a CPA firm selected by the Department of Justice.

Reason 10: Occasionally the pro se case is such a chaotic mess that the debtor is forced to dismiss the bankruptcy and later re-file with the assistance of an attorney. That’s two bankruptcies on your credit report for the price of one!

Reason 11: If you are reaffirming a debt, you must appear in open court and answer the bankruptcy judge’s questions.

The upside of representing yourself is saving a few dollars. The downside is a considerable risk to your property, your future finances, and, in extreme cases, your liberty. Don’t risk your families’ well-being! Let an experience bankruptcy attorney guide you through your bankruptcy case.

Call the Law Office of Erich M. Niederlehner, PA prior to filing a bankruptcy not after things have gone wrong in your case. We offer free consultations and reasonable fees that can be paid over time so there is no reason not to hire an attorney to represent you in your bankruptcy filing.

If you have gambling debt, tell your attorney and don’t lie!

There is a common myth that gambling debts cannot be discharged in bankruptcy. The truth is that gambling debts usually receive the same treatment as any other unsecured debt, like credit cards or medical bills. However, under some unusual circumstances, a bankruptcy court may find that a gambling debt cannot be discharged.

Gambling debts commonly appear as credit card charges or cash advances. An important factor in the discharge of this debt is whether there was an intent to repay the debt when the charge or advance was incurred. If the debtor had no intent to repay the obligation, the credit card company may object to the discharge of this debt on the basis of fraud. Courts have generally been reluctant to listen to this objection by a creditor unless there is strong evidence of fraud. For instance, a debtor who takes out a $10,000 cash advance at the casino, even though he is recently unemployed and overwhelmed by debt, and who files bankruptcy the next day will likely have the hall-marks of fraud.

Most gambling debts in bankruptcy are not as cut and dry as the above example. If the credit card company objects, the bankruptcy court will hold a hearing. The court may look to the debtor’s past credit card transactions, any attempt to repay the obligation, and the records and testimony of the debtor to determine the existence of a fraudulent intent.

All gambling losses must be disclosed by the debtor on the Statement of Financial Affairs. This disclosure is a mandatory requirement and the intentional failure to disclose this information may result in a finding that the gambling debt cannot be discharged, or worse, the court may deny any discharge in the case as a result of the debtor’s misrepresentation. It is particularly important to disclose recent gambling losses to your attorney prior to the filing of your bankruptcy case. Recent credit card charges or cash advances can be problematic to any bankruptcy case; and especially troublesome if related to gambling debt.

Bankruptcy courts can be very forgiving to the honest, although perhaps foolhardy debtor, and very unsympathetic to the dishonest. Honesty and full disclosure is especially important in a case involving gambling debts. Discuss these debts with your bankruptcy attorney and provide all the requested documentation. The success of your bankruptcy case depends on it!

How to Value Household Property in Bankruptcy

During bankruptcy a debtor is required to reveal all assets and give an estimated value of the property. When the asset is cash money or an investment, figuring its value is easy. In other cases nailing down a value can be very elusive. This is especially true when dealing with a unique or expensive household item. So how does the bankruptcy trustee expect the debtor to come up with a value for household property?

To understand how to value household property for bankruptcy purposes, it is important to understand the bankruptcy process. One of the chief functions of the bankruptcy trustee is to uncover assets for the benefit of creditors. Federal and state laws allow the debtor to keep certain modest items of household property that are considered “necessary,” like clothing and household items, but only up to a certain dollar amount. That amount is called an “exemption,” and that property is considered “exempt” and protected from a creditor’s collection remedies. Any property that is worth more than the allowed exemption amount is subject to be liquidated, usually at auction.

So the easy answer to how household property should be valued is, “At auction prices.” Since auction prices can vary, that doesn’t really answer the question at all. Instead, what most bankruptcy trustees suggest is to set a price like you would at a yard sale. Additionally, internet resources like eBay can be helpful to determine the quick-sale market value of a unique item. Using one of these on-line resources can provide good evidence that your new-in-box Barack Obama Chia Pet is only worth $20.00.

Many used household items, like common dinner dishes or bedding, have little or no value. On the other hand, a grandfather clock, piano, or gun safe usually has some value. A bankruptcy trustee is not in the used furniture business, and will usually incur significant costs in selling a debtor’s property. Consequently, the trustee will not be interested in your household property unless you own a non-exempt item that can be sold for a substantial profit to the bankruptcy estate.

As owner of your property, you are entitled to give an opinion regarding its value. It is important not to under-value or over-value your household property, but instead give a fair and reasonable estimate. If you own an expensive household, do some research and speak to your bankruptcy attorney. There are many ways to protect property in bankruptcy and your bankruptcy attorney can help you decide on the best course of action.