When an individual files for bankruptcy, they are required to declare all of their assets. Even what seems like a relatively small asset may be used to invalidate an individual’s bankruptcy petition based on a false oath.
This may lead to a refusal of their bankruptcy discharge. Under federal laws, any individual who fails to disclose an asset that they own can be charged with hiding assets in bankruptcy.
Hiding assets, bribery, and fraudulent oaths and claims are all classified as federal felonies. When an individual files for bankruptcy, it is a criminal offense to knowingly and fraudulently do any of the following:
- Conceal property or assets from a creditor or from the bankruptcy trustee;
- Make an untrue oath or account related to a bankruptcy case;
- Falsify a bankruptcy declaration, certification, or verification;
- Falsify evidence or claim in the case;
- Obtain any substantial property from a bankrupt individual so that the individual does not lose it;
- Attempt to accept, offer, or accept any money or property in order to assist an individual in concealing assets in a bankruptcy;
- Transfer money or property fraudulently to another individual or another business to conceal assets in the bankruptcy;
- Falsify a bankruptcy record by falsifying, concealing, destroying, or modifying facts about the debtor’s property; and
- Withhold documented information regarding the property of the debtor or the debtor’s financial circumstances from the court or any authorized officer.
If an individual is accused of engaging in any of this conduct, they may be charged with a federal felony. It is also important to note that a combination of the conduct listed above can also lead to criminal charges.
In addition, the United States Bankruptcy Code prohibits the discharge of any debt collected through:
An individual’s bankruptcy filing may be dismissed and they may remain liable for the debts they were trying to discharge. If their case is dismissed, they would be required to wait a specific period of time before they could file for bankruptcy again.
How Long Would I Have To Wait Before Refiling if My Bankruptcy Case is Dismissed?
If an individual’s bankruptcy petition is dismissed due to the concealment of assets on their petition, they will be required to wait one year before filing again. In general, if an individual received a Chapter 7 or Chapter 11 discharge within the six years before filing their current petition, they cannot be relieved of debt under Chapter 7.
An individual would also be ineligible for discharge if they were granted a Chapter 12 or Chapter 13 discharge in a case that paid less than 70% to unsecured creditors and was filed within six years of their current petition.
How Do People Hide Assets?
When an individual files for bankruptcy, they may attempt to hide their assets by gifting property or money to their family members or friends. By doing this, their assets are not technically in their ownership when they declare bankruptcy.
Courts, however, are well aware of this practice, as paying family members or friends before filing for bankruptcy may be viewed as a preferential payment or as a fraudulent asset transfer. Courts may require the family members of friends to pay the money back or return the property.
Payments that an individual makes up to 365 days before filing for bankruptcy may be pursued by the trustee, or the official who is appointed by the court to supervise the bankruptcy. If the trustee discovers that the debtor has hidden assets, they may face criminal prosecution.
What Are Related Federal Crimes?
The federal laws that govern the hiding of assets are located in Chapter 9 of Title 18 of the United States Bankruptcy Code. Other crimes that may also be found in this chapter include:
- 18 U.S.C. 153: Embezzlement against an estate is an offense that is punishable by up to five years in federal prison as well as criminal fines;
- 18 U.S.C. 154: An official who acts against the government may be penalized and may be required to forfeit their position;
- 18 U.S.C. 155: A fee agreement under Title 11 or receivership may result in imprisonment of up to one year in addition to criminal fines;
- U.S.C. 156: Knowingly disregarding bankruptcy laws or rules may be punished by up to one year incarceration and a criminal fine; and
- 18 U.S.C. 157: Bankruptcy fraud may be punished by imprisonment for up to five years, criminal fines, or a combination of both.
Generally, these related offenses may be charged in addition to the concealment of assets charges or may be used to negotiate a plea deal in order to avoid more serious charges. Although these are bankruptcy related offenses, the Attorney General and the F.B.I. are also involved in enforcing these laws.
What Are the Penalties for Hiding Assets during Bankruptcy?
Hiding assets during bankruptcy, as previously discussed, is a federal offense. It is punishable by up to five years in a federal prison and criminal fines imposed by a court in accordance with the federal sentencing guidelines.
Offenses that have a five year maximum punishment are found in the same chapter of the United States Code as embezzlement against the estate and bankruptcy fraud.
Can I Omit Certain Information on My Bankruptcy Paperwork?
When an individual files for bankruptcy for the first time, they are required to submit a large volume of paperwork to the bankruptcy court. This documentation provides information regarding an individual’s:
- Assets; and
- Any predicted future windfalls, for example, an inheritance.
Attempting to omit some of this information may seem tempting. However, an individual has to be honest when they submit their bankruptcy application.
What Are the Consequences of Submitting Incomplete or Incorrect Bankruptcy Paperwork?
If a bankruptcy court determines that the information that was submitted by an individual is incomplete, their case may be dismissed. An individual may also be prohibited from re-filing in bankruptcy court in the future.
If a bankruptcy court determines that an individual was dishonest, the outcome may be worse than their current issues. This is because, in addition to having their case dismissed, they may also face prosecution for bankruptcy fraud.
The penalties for bankruptcy fraud are severe, with incarceration being a regularly issued punishment. Debtors are permitted to make timely updates to their papers if they forget to include certain information in their paperwork.
A debtor may be able to recover their case after it has been dismissed under very rare circumstances. Recovery requirements typically differ between circuits.
For example, in the Ninth Circuit, a debtor must demonstrate that they withheld facts on their bankruptcy petition because of an honest error. A party who presents papers to mislead the court will be prohibited from continuing their lawsuit.
What Should I Do if I Acquire Property after Filing for Bankruptcy?
If an individual acquires property after they file for bankruptcy, they are required to notify the bankruptcy court. A supplemental asset schedule should be provided in Chapters 7, 11, 12, or 13 cases to show that the property was purchased after the bankruptcy was filed.
This supplemental schedule has to be filed within ten days of discovering that the individual is acquiring the property. A schedule must be submitted each time an individual purchases new property.
In the majority of cases, the property an individual obtains after filing for bankruptcy will not become part of their bankruptcy estate and they will be permitted to keep it. Even if an individual’s debt was discharged before the 180 day period, they are required to inform the trustee of any assets they acquired within 180 days of filing for bankruptcy.
Should I Talk to an Attorney Regarding the Penalties for Hiding Assets in Bankruptcy?
If you are considering filing bankruptcy, it is important to understand the best strategy you can use to protect your assets without illegally transferring them. What steps you can take will be different in each state.
Your bankruptcy lawyer can advise you regarding when you should file for bankruptcy and when you should not as well as how to best protect your assets. Your attorney will also represent you in bankruptcy court.