BANKRUPTCY FRAUD
Are you looking for information on how to report a specific instance of fraud, or do you need details on defending against an allegation?
In the U.S. bankruptcy system, an adversary proceeding is a formal lawsuit that occurs within the umbrella of a larger bankruptcy case. While the main bankruptcy case is primarily administrative, an adversary proceeding follows the more rigorous procedural rules of federal civil litigation to resolve specific, high stakes disputes. When is an Adversary Proceeding Required? Rule 7001 of the Federal Rules of Bankruptcy Procedure mandates that certain actions must be handled through an adversary proceeding rather than a simple motion. Common examples include:
Objecting to Discharge: Seeking to deny the debtor a general discharge of all debts due to misconduct like hiding assets.
Nondischargeability of a Specific Debt: Determining th>>at a particular debt such as one incurred through fraud or willful injury cannot be wiped away.
Recovering Assets: Actions to claw back preferential payments made to certain creditors just before filing or to undo fraudulent transfers of property
.Contact our
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if you have questionsDetermining Lien Priority: Resolving disputes over who has the primary legal right to collateral, such as a house or car.
Injunctive Relief: Seeking a court order to stop someone from taking a specific action.
Key Differences from Contested Matters
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Disputes in bankruptcy that do not require an adversary proceeding are called contested matters.
Initiation: Adversary proceedings start with a complaint; contested matters start with a motion.
Formality: Adversary proceedings involve full discovery depositions, interrogatories , formal pleadings, and a trial. Contested matters are typically resolved more quickly with less administrative overhead.Case Number: An adversary proceeding is assigned its own unique case number, separate from the main bankruptcy case.
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Standard Procedural Stages
Complaint & Summons: The plaintiff debtor, creditor, or trustee files the complaint. The court then issues a summons that must be served on the defendant.
Answer: The defendant generally has 30 days from the summons issuance to file a response.
Discovery: Both sides exchange evidence, take depositions, and request documents to build their case.
Dispositive Motions: Parties may ask the judge for summary judgment if the facts are not in dispute.
Trial/Settlement: Most cases settle through mediation, but unresolved disputes proceed to a trial before the bankruptcy judge.
Note on Fees: Filing an adversary complaint typically requires a $350 fee, though this is often waived for debtors.
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Are you considering filing a complaint as a creditor, or are you defending against an action brought by a trustee or creditor?
Thinking a little longer
Bankruptcy fraud is a federal white collar crime involving the misuse of the Federal bankruptcy system to deceive creditors or the court. It is primarily governed by 18 U.S.C. ยงยง 152 and 157, which criminalize knowingly making false statements or concealing assets during a bankruptcy proceeding.
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if you have questionsCommon Types of Bankruptcy Fraud
The FBI estimates that roughly 10% of filings involve some form of fraud. Common schemes include:Petition Mills: Fraudulent services that charge high fees to help tenants avoid eviction by filing bankruptcy in their name without their full understanding, often ruining the victim's credit.
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Concealment of Assets: Hiding property, cash, or bank accounts often using offshore accounts or fictitious names to prevent them from being liquidated to pay creditors.
Multiple Filings: Filing for bankruptcy in several states or jurisdictions simultaneously, using false identities to stall creditors and buy time.
Credit Card Bust Outs : Intentionally maxing out credit cards with no intention of repayment shortly before filing for bankruptcy.
Bribery and Document Destruction: Attempting to bribe a court appointed trustee or destroying financial records to hide the true state of one's finances.
Legal Consequences
Convictions for bankruptcy fraud carry significant penalties:
Criminal Penalties: Up to 5 years in federal prison per count and/or a fine of up to $250,000.
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Civil Consequences: The court may deny the discharge of debts, meaning the filer remains legally responsible for all original balances.
Asset Forfeiture: Property involved in the fraud can be seized and returned to the bankruptcy estate.
Reporting Fraud >..
Suspected bankruptcy fraud can be reported to the U.S. Department of Justice through the U.S. Trustee Program via email at Office of the United States Trustee, 101 W. Lombard Street, Room 2650, Baltimore, MD 21201.<<
Recent High Profile Cases They allegedly inflated invoices and double pledged collateral before their auto parts supply business collapsed into bankruptcy.
