Bankruptcy Crimes

Bankruptcy Crimes

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re you guilty of bankruptcy crimes? Don't dismiss the possibility too lightly. Consider these examples from Stephanie Wickouski's book:

  • A man files bankruptcy using the wrong Social Security number.
  • A lawyer files a personal bankruptcy case on his own behalf, but does not list his interest in bank accounts that are held in the name of a corporation.
  • A creditor receives payments from a bankruptcy debtor that were not approved by the bankruptcy court.
  • A non-lawyer collects fees from an individual to file a bankruptcy petition on that individual's behalf; the petition is filed without the required information, or is not filed at all.
  • A debtor's lawyer files a disclosure with the court that contains an incomplete disclosure of the law firm's representation of other clients, some of which are creditors in the case.

All of these were actual cases in which defendants either pled or were found guilty of bankruptcy fraud. All received jail sentences, in some cases as long as six years.1

Anyone who practices bankruptcy law or is involved in a case as an insolvency accountant or turnaround manager runs the risk of committing bankruptcy crimes. Even those debtor representatives who do not commit crimes themselves have to be ready to recognize criminal behavior by their clients.

Consider the following: A chapter 7 trustee puts the debtor's house on the market using a real estate agent. The agent reports that each time she attempts to show the house, the debtor refuses to allow her access. The trustee has a talk with the debtor, informing him that the next conversation will be with the judge if he continues to deny access in contravention of the trustee's efforts to carry out his duties.

The debtor agrees to allow access to the house, but insists that the real estate agent give telephone notice several hours prior to any showing of the house. The real estate agent gives the notice only to find that the debtor has dumped clothes and trash throughout the house each time she brings a prospective purchaser through. Has the debtor committed a bankruptcy crime by interfering with the trustee's efforts to carry out his Bankruptcy Code-mandated duties?

Suppose the trustee gets a sale contract despite the debtor's interference, gives notice of the sale and seeks court approval. Before a hearing on the sale can be held, the debtor sees the prospective purchaser at a local health club and threatens the purchaser and his family with physical harm if he does not back out of the contract. The purchaser backs out of the contract only to have the debtor's investment-club buddies make an offer to purchase the house for a lesser amount. The trustee objects to the sale on the basis that the debtor has interfered with a bona fide sale offer, that the proposed sale to the debtor's investment-club buddies is a fraud designed to allow the debtor to stay in the house and that the entire effort by the debtor constitutes a bankruptcy crime. Is the trustee right? Stay tuned.

Bankruptcy Crimes is designed to help you find answers to questions about what behavior constitutes bankruptcy crimes and how you should respond. The book is excellent. From its explanation of the origin of the word "bankruptcy" (derived from Italian "banka rotta" which, translated, means broken bench or table, referring to the Middle Age practice by which creditors broke the tables of defaulted debtors) to a discussion of the ethical dilemmas faced by lawyers in pre-bankruptcy planning, Ms. Wickouski's book covers her topic completely.

Take a look at the index and you will see that no subject related to bankruptcy crimes goes untouched. The evolution of what constitutes a bankruptcy crime, the development of the treatment of bankruptcy crimes, analyses of federal criminal statutes regarding specific bankruptcy crimes and statutes that make crimes of other behavior in bankruptcy cases, prosecution and defense, penalties and legal ethics—all are covered.

In addition to the completeness of coverage, the book is well-written. Clear, concise, crisp sentences and easy transitions between paragraphs and topics make for enjoyable reading about a sometimes not-so-enjoyable but critically important subject.

Was the trustee in the case of the debtor who interfered with the sale of his house right that the debtor had committed bankruptcy crimes? The judge approved the sale over the trustee's objection and the trustee made the debtor's behavior known to the U.S. Attorney's office. Nothing further ever happened. Read the book to see whether something should have happened.

If you practice in the bankruptcy arena, this book is a must-read for protecting yourself from becoming personally involved in a bankruptcy crime.


Footnotes

1 Bankruptcy Crimes at 2 and 3. Return to article

Journal Date: 
Sunday, October 1, 2000