Bankruptcy Fraud: A Section 727 Denial Or A 2004 Exam Can Lead To Criminal Charges

Bankruptcy fraud is serious business. Lately, bankruptcy fraud has been making the news as entertainers and wealthy reality stars are charged or convicted of the crime. While you may not be trying to compete, the wrong move can not only ruin your chances for a bankruptcy discharge, it can land you in legal hot water. If that happens, you'll need a criminal defense lawyer instead of a bankruptcy attorney. This is what you should know.

What can cause you to be charged with bankruptcy fraud?

If a creditor suspects that you aren't being honest about your plight, your entire right to a bankruptcy can be challenged in court under Section 727 of the bankruptcy code. A number of different things can lead to the challenge:

  • hiding assets in someone else's name

  • transferring property to someone else within the year before you file

  • telling the court that your financial records have been destroyed or lost

  • allegations that you lied about your income in order to obtain the credit that you used

  • allegations that you've lied under oath about your debts or ability to repay

  • missing property for which you can't offer a good explanation

  • your refusal to answer any and all questions put to you by the bankruptcy court

Keep in mind that the bankruptcy trustee also has the right to challenge your entitlement to a bankruptcy and open an investigation if he or she suspects any wrongdoing on your part or thinks that you are hiding something from the court.

What happens if you are charged with a Section 727 violation?

If the trustee or your creditors suspect fraud, you and anyone else that the trustee wants to drag into court can be subject to a 2004 Exam. These examinations are done under oath and can dig into virtually any aspect of your finances and life. Anyone you know that gets pulled into the investigation can also have his or her financial life opened up and examined as well as part of a criminal investigation.

If your bankruptcy is ultimately denied under a Section 727 violation, the results can be devastating. All of your non-excludable assets (such as jewelry, extra vehicles, non-residential property, and more) will be seized and liquidated by the trustee in order to pay your debts. Whatever debts remain will then be yours to deal with and your creditors will be free to pursue other legal remedies against you, such as liens on your remaining property and the garnishment of your wages.

In addition, you (and anybody who is found to have assisted you in any sort of fraud) could end up facing federal criminal charges as a result. The potential penalties include up to five years in prison and a $250,000 fine.

Even your bankruptcy attorney can end up in trouble if the court decides that the attorney didn't do his or her due diligence when inquiring into your assets and income. He or she could be subject to fines and made to pay the trustee's fees.

When filing for bankruptcy protection, your best defense against any suspicion of fraud is total transparency. The court realizes that anyone can make financial mistakes -- don't compound them, however, by trying to hide something from either your creditors or the trustee. If, for any reason, you think that there is about to be a Section 727 investigation or a 2004 Exam has been scheduled, contact a criminal attorney like one from Walsh Fewkes Sterba right away.