What is bankruptcy fraud?
Bankruptcy fraud is a federal crime. 18 U.S.C. §152 lists nine acts, such as hiding property from the trustee or creditors and making a false oath in a bankruptcy case. Each must be done "knowingly and fraudulently." 18 U.S.C. §157 covers filing a petition or document to carry out a scheme to defraud. Both carry a fine, up to 5 years, or both.
- Bankruptcy is federal, so these charges are brought in federal court.
- Section 152 sets out nine ways to commit it, each requiring a knowing and fraudulent act.
- Section 157 punishes filing to execute a scheme to defraud.
- Concealing assets is a continuing offense, so the time limit starts only when the discharge is granted or denied.
- Losing your discharge under 11 U.S.C. §727 is separate from being prosecuted.
Most people who file for bankruptcy never hear from a federal agent. Trouble starts when a trustee thinks something was left off the paperwork. Peter M. Barrett has been licensed in Texas since 1994 and has tried more than 150 jury trials. He is a Past President of the Dallas Criminal Defense Lawyers Association (2005). See our Dallas white collar crime defense page. This article covers the criminal side. It is not bankruptcy advice, and questions about your filing belong with your own bankruptcy counsel.
Why this is always a federal case
Bankruptcy runs under title 11 of the United States Code, in federal court. The criminal statutes sit in title 18 and are prosecuted by the United States Attorney, so a federal crime defense posture applies from day one. Referrals often begin inside the case itself.
18 U.S.C. §3057(a) says any judge, receiver, or trustee with reasonable grounds to believe a violation has been committed "shall report to the appropriate United States attorney all the facts and circumstances of the case, the names of the witnesses and the offense or offenses believed to have been committed." The United States Attorney then inquires and, if an offense appears probable, presents it to the grand jury. Under 28 U.S.C. §586(a)(3)(F), a United States trustee must notify the United States Attorney of matters relating to any action that may be a federal crime.
The nine ways to commit it under section 152
Each paragraph below is its own way to commit the offense. Every one uses the phrase "knowingly and fraudulently."
- (1) Concealing property of the estate from a custodian, trustee, marshal, or other officer of the court, or from creditors or the United States Trustee.
- (2) A false oath or account in or in relation to a title 11 case.
- (3) A false declaration, certificate, verification, or statement under penalty of perjury in a title 11 case.
- (4) A false claim presented or used against the estate, in person or through an agent or attorney.
- (5) Receiving property from a debtor after filing, in a material amount, with intent to defeat title 11.
- (6) Bribery: giving, offering, receiving, or attempting to obtain money, property, a reward, or an advantage for acting or forbearing to act in a case.
- (7) Transferring or concealing property in contemplation of a case, or with intent to defeat title 11.
- (8) Destroying records: after filing or in contemplation of it, concealing, destroying, mutilating, falsifying, or making a false entry in recorded information about the debtor's property or finances.
- (9) Withholding records after filing from an officer of the court or United States Trustee entitled to them.
One penalty clause closes the list and covers all nine: a person who does any of these "shall be fined under this title, imprisoned not more than 5 years, or both."
Section 157: bankruptcy fraud as a scheme
18 U.S.C. §157 works differently. It reaches a person who has "devised or intending to devise a scheme or artifice to defraud" and who, to execute or conceal it, files a petition under title 11, files a document in a title 11 proceeding, or makes a false or fraudulent representation or claim about such a proceeding. Attempts count, as does a case falsely asserted to be pending. It carries a fine, not more than 5 years, or both.
| Statute | What it punishes | Maximum |
|---|---|---|
| 18 U.S.C. §152 | Nine knowing and fraudulent acts | 5 years, a fine, or both |
| 18 U.S.C. §157 | Filing to execute a scheme | 5 years, a fine, or both |
| 18 U.S.C. §1341 | Mail fraud | 20 years, or 30 if a financial institution is affected |
| 18 U.S.C. §1343 | Wire fraud | 20 years, or 30 if a financial institution is affected |
| 18 U.S.C. §1621 | Perjury | 5 years, a fine, or both |
| 18 U.S.C. §1623 | False declaration before a court or grand jury | 5 years, a fine, or both |
Charges that often ride along
§1341 and §1343 both start with a scheme or artifice to defraud. Mail fraud requires use of the mail or a commercial interstate carrier. Wire fraud requires an interstate or foreign wire, radio, or television communication. Each carries up to 20 years, and 30 if a financial institution is affected, far above the 5 years in sections 152 and 157.
§1621 covers perjury, where a person willfully states a material matter he does not believe to be true. §1623 covers a knowing false material declaration before a court or grand jury of the United States. Both carry up to 5 years. See also embezzlement and money laundering and tax evasion sentences.
How long the government has to charge you
The general rule is 18 U.S.C. §3282(a). Unless a law says otherwise, no person may be prosecuted for a non-capital offense unless the indictment is found within five years after the offense. Concealment is the exception.
18 U.S.C. §3284 reads: "The concealment of assets of a debtor in a case under title 11 shall be deemed to be a continuing offense until the debtor shall have been finally discharged or a discharge denied, and the period of limitations shall not begin to run until such final discharge or denial of discharge." The clock does not start at the filing, so a closed case can still be inside the window.
Common fact patterns, and the statute each one touches
- Assets left off the schedules. A vehicle, a settlement, or an account that never reached the paperwork. A knowing and fraudulent omission lines up with §152(1) and §152(2) or (3).
- Property moved to a relative before filing. Section 152(7) reaches a transfer or concealment in contemplation of a case, or with intent to defeat title 11.
- Income understated. Schedules are signed under penalty of perjury, which brings in §152(3) and can bring in §1621(2).
- Debt run up shortly before filing. 11 U.S.C. §523(a)(2) excepts from discharge debts obtained by false pretenses, a false representation, or actual fraud, and presumes nondischargeable certain consumer debts for luxury goods incurred within 90 days before the order for relief. That is about whether the debt survives, not a criminal charge.
- Filing under more than one name. False identifying information on a petition or schedule runs into §152(3), and, where a scheme is alleged, §157(1) and (2).
The civil side: losing your discharge
Denial of a discharge is a bankruptcy remedy, not a criminal punishment, and it can happen whether or not anyone is charged. Under 11 U.S.C. §727(a), the court shall grant a discharge unless a listed ground applies. Several mirror the criminal statutes:
- §727(a)(2). The debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate, transferred, removed, destroyed, or concealed property of the debtor within one year before filing, or property of the estate after filing.
- §727(a)(3). The debtor concealed, destroyed, falsified, or failed to keep records from which the financial condition might be ascertained, unless justified.
- §727(a)(4). The debtor knowingly and fraudulently made a false oath or account, used a false claim, took or offered an advantage for acting or forbearing to act, or withheld records from an officer of the estate.
- §727(a)(5). The debtor failed to explain satisfactorily any loss of assets, or any shortfall in assets to meet liabilities.
Under §727(c), the trustee, a creditor, or the United States trustee may object. A discharge already granted can also be revoked. Section 727(d) says the court shall revoke it if it was obtained through the debtor's fraud and the requesting party did not learn of that fraud until afterward, or if the debtor knowingly and fraudulently failed to report or turn over property of the estate. Section 727(e) sets deadlines. A revoked discharge means the debts stay. A prosecution means prison is on the table.
What to do if a trustee or an agent starts asking
- Do not change or destroy anything. Amending a schedule or clearing a folder before you get advice can create a new offense under §152(8).
- Keep every record. Bank statements, transfer documents, appraisals, texts, and email. The paper often shows an omission was careless, not fraudulent.
- Do not talk without a lawyer, whether it is an agent at the door or an interview request. See your right to remain silent.
- Take the trustee's examination seriously. Under 11 U.S.C. §343, the debtor must appear and submit to examination under oath at the meeting of creditors held under §341(a). Those answers are sworn, which is what §152(2) is about.
- Use two lawyers. Bankruptcy counsel handles the filing. A criminal lawyer handles the exposure. Call (214) 526-0555, or see what is a white collar crime.
Common questions
Is bankruptcy fraud a felony?
Both main statutes carry more than one year. Sections 152 and 157 each say the person shall be fined under title 18, imprisoned not more than 5 years, or both. Mail and wire fraud carry up to 20 years.
Can you be charged if the scheme did not work?
Section 152 punishes the listed acts themselves, such as concealing property or making a false oath. It does not require that creditors lost money. Section 157 reaches a person who files to execute or conceal a scheme, including an attempt.
What is the statute of limitations on bankruptcy fraud?
The general federal period in 18 U.S.C. section 3282(a) is five years from the offense. For concealment of assets, section 3284 treats the offense as continuing. The period does not begin to run until final discharge or denial of discharge.
What if I simply forgot to list an asset?
Section 152 requires that the act be done knowingly and fraudulently. An honest omission is not that. Whether the government can prove the mental state is often the central question, answered with documents, timing, and sworn answers.
Can the court take away a discharge I already received?
Yes. Under 11 U.S.C. section 727(d), the court shall revoke a discharge on request if it was obtained through the debtor's fraud and the requesting party did not learn of it until afterward. Section 727(e) sets time limits.
The law this article describes, at the source. Every figure above can be checked against it.
- 18 U.S.C. §152: concealment of assets, false oaths and claims, bribery
- 18 U.S.C. §157: bankruptcy fraud
- 18 U.S.C. §3284: concealment of bankruptcy assets as a continuing offense
- 18 U.S.C. §3282: the general five year federal limitations period
- 18 U.S.C. §3057: bankruptcy investigations and referral to the United States Attorney
- 18 U.S.C. §1341: frauds and swindles (mail fraud)
- 18 U.S.C. §1343: fraud by wire, radio, or television
- 18 U.S.C. §1621: perjury generally
- 18 U.S.C. §1623: false declarations before a court or grand jury
- 11 U.S.C. §727: discharge, denial of discharge, and revocation
- 11 U.S.C. §523: exceptions to discharge
- 11 U.S.C. §343: examination of the debtor under oath
- 28 U.S.C. §586: duties of United States trustees
This article is general legal information about federal law, not legal advice about your case, and it is not bankruptcy advice. Reading it does not create an attorney-client relationship. Laws change, so confirm the current rule with a licensed criminal defense attorney about your specific facts, and talk with your own bankruptcy counsel about your filing. Request a free, confidential case review.