What is the Potential Impact of Misrepresentation in a Bankruptcy Proceeding?

When you are struggling to meet your financial obligations, and have sought bankruptcy protection, the temptation to falsify information can always be present. You may fear that the court won’t grant your petition, that you’ll again face the seemingly endless calls, letters and threats from creditors. Making false statements during a bankruptcy filing is bankruptcy fraud, however, and bankruptcy trustees take the abuse of the system very seriously. The bankruptcy laws provide trustees with specific tools to verify the validity of assertions made in a bankruptcy petition.

An Examination under Rule 2004

The trustee has the power to obtain testimony and even documents from the person filing for bankruptcy, as well as any other relevant party. Under Rule 2004, the trustee can investigate any matter that will potentially affect the administration of the bankruptcy estate, or the debtor’s right to permanently discharge debts. This includes an examination of financial documents, conduct, property or other items.

Filing an Adversary Proceeding

The trustee, the United States Trustee’s Office, or other creditors may file a lawsuit, known in bankruptcy as an “adversary proceeding.” The adversary proceeding may name anyone, not just creditors or debtors. The trustee can use the adversary proceeding to:

  • Recover property wrongfully seized by creditors
  • Establish an appropriate value for property misrepresented by a debtor
  • Set aside wrongful or fraudulent transfers designed to favor specific creditors, or to remove property from a bankruptcy estate
  • Require that debtors make hidden assets available to the trustee
  • Seek restitution for or recovery of property wrongfully taken by employees, officers, shareholders or others in a business bankruptcy
  • Deny or revoke discharge of debt where the debtor has intentionally hidden or transferred assets to avoid inclusion in the bankruptcy estate

The trustee can ask the court to issue an injunction, prohibiting any party from taking actions that will have a negative impact on the bankruptcy estate.

Criminal Sanctions for Bankruptcy Fraud

The trustee may refer a case to the FBI or to the U.S. Attorney’s office for investigation for criminal offenses. Potential charges can include the filing of a false petition, the filing of false claims, intentionally concealing assets, bribery or embezzlement.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

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