Bankruptcy Fraud Flashcards
In a bankruptcy proceeding, what is required for secured interests?
A secured creditor holds a claim for which there is a properly perfected security interest.
To enjoy the benefits of being a secured creditor in a bankruptcy proceeding, the creditor must hold a claim for which there is a properly perfected security interest. The perfection of a security interest often requires the creditor to file a financing document, lien, or some other document to demonstrate to other potential creditors that the debtor’s property is subject to a security interest. For instance, certain security interests in personal property require a Uniform Commercial Code filing. Real estate liens are recorded in the county where the property is located. The bankruptcy court will rely on state law where the property is located to determine if a secured claim exists.
Role of office of UST
The Office of the U.S. Trustee (UST) is an agency that handles many administrative tasks for bankruptcy proceedings. The Office of the UST is responsible for appointing trustees, examiners, and Chapter 11 committees; overseeing and monitoring trustees; reviewing employment and fee applications; and appearing in court on matters of interest to the estate and creditors. The Office of the UST is divided into 21 regions, each made up of one or more federal districts. Each region consists of a U.S. Trustee (or an Assistant Trustee in several regions). The Office of the U.S. Trustee in each region principally is comprised of staff attorneys, bankruptcy analysts (including accountants), and, in some instances, special investigative units.
Federal Bankruptcy Court and US Attorney Office Role
Federal bankruptcy courts are responsible for hearing bankruptcy cases, and the U.S. Attorney’s Office primarily prosecutes bankruptcy fraud.
Unacceptable defenses to bankruptcy crime
Defendants cannot use the fact that creditors have actual knowledge of concealed assets or that the concealment was not from all creditors as a defense to charges. They also cannot use as a defense the fact that they returned the estate’s assets, though this might mitigate damages.
Chapter 7
The Bankruptcy Code provides multiple methods for individuals and organizations to file bankruptcy. Chapter 7 bankruptcy is the most common type; it involves liquidation of the debtor’s assets by a trustee to pay the creditor’s claims. A debtor’s objective in a Chapter 7 case is to be relieved of all dischargeable debts and to obtain a fresh start. This is accomplished by the court granting the individual debtor a discharge. Personal bankruptcy does not eliminate taxes, fines, alimony, child support, and certain student loans
Examiner Role
In the context of bankruptcy proceedings, an examiner is a neutral party that the court may appoint to investigate and report on relevant matters to Chapter 11 bankruptcy cases. An examiner is normally appointed in a bankruptcy proceeding to investigate certain allegations of fraud and misconduct on the part of the debtor (or principals of the debtor). In a typical motion for the appointment of a trustee or examiner, allegations of fraud or misconduct are raised by creditors, the Office of the UST, or other interested parties. A bankruptcy judge hears evidence submitted by all parties (creditors, et al.), as well as the debtor’s response to the allegations. After hearing the evidence, the judge has the option to either appoint a trustee or an examiner, or leave the debtor in possession of the business—a decision that hinges on what is best for the interested parties. If an examiner is appointed, the sole responsibility is to “investigate and report” the results of the investigation to the court and other parties in interest as quickly as possible.
Examiners have the power to subpoena records and depose witnesses. They do not have the power to run businesses, make business decisions, or propose plans of reorganizations (generally speaking). Courts may expand the examiner’s powers to perform certain duties of trustees or debtors-in-possession.
Role of Adjusters
Adjusters, or operations agents, are the “right hand” to trustees and debtors. An adjuster is an individual who handles the peripheral duties of a trustee. Such duties include securing the business location, changing locks, locating assets of the estate, locating business records, opening new bank accounts, investigating thefts of assets in conjunction with the trustee, storing assets of the estate, and arranging sales of assets. Adjusters also can assist debtors and trustees in operating the debtor’s business and in helping to prepare bankruptcy schedules, interim statements, and operating reports.
Trustee Role
In a bankruptcy proceeding, the appointed trustee’s powers enable him to gather financial information from various sources, including the debtor’s attorneys and accountants. A trustee steps into the debtor’s shoes, which allows him the opportunity to break the attorney-client and accountant-client privileges. Attorneys might attempt to raise the attorney-client privilege as a defense to providing information, but they are usually unsuccessful in this regard. Since the trustee is now the client, he must be able to understand what legal actions need to be taken. Therefore, it is imperative that the debtor’s attorney cooperate with the trustee. The trustee also should have access to the accountant’s work papers, tax returns, and client documents, which might provide the trustee and creditors with the opportunity to locate and recover hidden assets. Another useful tool in the trustee’s arsenal is the power to have access to the debtor’s records that are in the possession of law enforcement authorities. Since the trustee steps into the debtor’s shoes, he has the right to inspect and use these records to conduct the debtor’s business affairs.
Proof required for a federal bankruptcy crime?
To constitute and be proved as a federal crime, bankruptcy crimes must have been committed during the pendency of a bankruptcy proceeding, with the defendant’s knowledge, and with a fraudulent intent to defeat the bankruptcy laws. The FBI investigates bankruptcy crimes and the U.S. Attorney’s Office prosecutes them.
Most common bankruptcy crime?
The most common bankruptcy crime is the concealment of assets rightfully belonging to the debtor estate. Assets might consist of cash, consumer property, houses, and interests in partnerships and corporations, as well as lawsuits in which the debtor is a plaintiff. Assets also include the debtor’s books and records. Concealments vary from little or no monetary value to tens of millions of dollars. The various concealment offenses are described in more detail under the bankruptcy crime statutes.
What is an involuntary petition? Requirements for involuntary petition?
An involuntary petition can only be filed under Chapters 7 and 11. Creditors who have not been paid by the debtor can file a petition forcing the company into bankruptcy. Generally, the creditors must be able to demonstrate in court that the debtor is not paying debts as they mature. To commence the filing of an involuntary proceeding, creditors must satisfy the following criteria:
The debts must not be subject to a bona fide dispute and must be noncontingent.
The creditor(s) must be owed at least $14,425 more than the value of the lien or collateral.
If there are 12 or more creditors, then three creditors are needed to file.
If there are fewer than 12 creditors, only one creditor is needed to file.
