Penalties associated with bankruptcy fraud

Bankruptcy Lawyer Bryan W. Stone answers the question: “Will anyone find out about my bankruptcy?”


It’s a favorite of the media: coverage of financial difficulties for celebrities (and sometimes, semi-celebrities). We love watching them fly high and, so it seems, love watching when they come crashing back down to earth. One issue that is assured to get media attention is when a celeb (or quasi celeb) goes into bankruptcy or, even worse, gets accused of bankruptcy fraud. There are several recent examples, including a few of the “Real Housewives”, the rapper 50 Cent and most recently, Abby Lee Miller, star of the reality TV show “Dance Moms”.


Handcuffs-Charlotte-Debt-Lawyer-300x225In Miller’s case, a bankruptcy court judge with a sharp eye was watching television one day when he figured out that the person staring back at him was also one of the people before him in bankruptcy court. The judge started poking around and came to the conclusion that Miller had failed to reveal all of the income earned from her work as reality TV star. Miller has now admitted to the dishonesty and is awaiting a sentence before a federal court judge. Though Miller and her attorneys are asking that the judge order probation, prosecutors are asking for a prison sentence of up to 30 months.


Though the case is a glaring example of what can go wrong when people misrepresent their financial situation in bankruptcy, is it a realistic example of what happens to most people? It’s easy to assume that when prosecutors go after celebrities, it’s based on a desire to capture their own 15 minutes of fame or make an example out of the famous person, leading you to believe that a normal person wouldn’t face such serious penalties. To find out more about the penalties associated with bankruptcy fraud, keep reading.


First, let’s talk about what counts as bankruptcy fraud. If you think you may not have written a figure correctly down to the last penny or accidentally forgot to include a small asset on your disclosure paperwork, remain calm. Accidents and oversights aren’t fraud. By it’s very definition, fraud is something that occurs when a person intends to misrepresent reality. It’s the intention to defraud that leads to the punishments. Clear mistakes or omissions need not result in criminal action.


Let’s talk about the worst-case scenario, and get that out of the way first. In cases where bankruptcy fraud is definitively proven, serious harm can occur. Beyond the penalties and fines, it’s possible a bankruptcy filer, even a normal person, could face criminal prosecution. The maximum penalties for bankruptcy fraud are up to a $250,000 fine and/or five years in prison. Certainly no laughing matter.


What’s a best-case scenario when it comes to bankruptcy fraud? At the very least, a case of bankruptcy fraud will result in the original bankruptcy petition being thrown out of court by a judge. In cases where the fraud doesn’t harm creditors or is relatively small, then tossing the case may be all that occurs. More likely in these kinds of minor cases is that the judge would throw out the bankruptcy petition and force you to pay some fines or penalties, sending a message without throwing the book at you.


Though prosecutors are no doubt interested in making an example of reality TV stars, it’s also true that penalties like those faced by Abby Lee Miller are real and can happen to anyone. It’s important if you’re considering filing for bankruptcy that you reach out to get help from an expert who can help you navigate the sometimes-treacherous waters and ensure that all your paperwork is correct the first time around.


If you are contemplating bankruptcy in the Charlotte area, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with legally sound advice for your particular situation.





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