Accusations of fraud are taken very seriously in Minnesota. If you have been threatened with a suit for bankruptcy fraud, or you think you might be in the future, you will need to know the basics of bankruptcy fraud law. These are the fundamental elements.
What’s Bankruptcy Fraud?
When you file for bankruptcy, you have to follow certain rules. The Wex library of Cornell University describes four areas where people get in to trouble as far as these rules go: They can be accused of hiding their property or understating the value of their assets, lying on the official forms, filing multiple times, and lying to the court as a trustee.
The courts may prosecute a person if they think he or she has transferred property to relatives or friends to hide property from creditors. They will also prosecute if they think someone has filed for bankruptcy in more than one state, more often than allowed, or when he or she is not eligible.
How often is too often to file for bankruptcy depends on your state. In Minnesota, how often you can file depends on the type of bankruptcy case you have. The Minnesota Bankruptcy Information site explains that if you have a Chapter 7 case (which is a simple liquidation of any property that exceeds certain limits that a trustee sells to pay off debts,) then you can get a discharge if you haven’t had a discharge in the last 8 years. For a Chapter 13 ‘debt adjustment,’ you can get a discharge every 6 years. If you don’t get your discharge, depending on the reason you didn’t get it, you might be able to file again before the time limit is up.
Bankruptcy fraud is a serious offence, a felony. In fact, most bankruptcy law is federal, and is treated as a federal offense. At the very least, you can lose your chance to discharge your debts if you are found guilty. some of your property that was previously exempt from liquidation may lose the exemption, and the court might liquidate more of your assets. You can get up to 5 years in prison and fined up to $250,000.
If a trustee, debtor, or creditor in a bankruptcy proceeding suspects fraud, but lacks sufficient evidence for a legal case, he or she can request a 2004 Examination from a bankruptcy court.
‘2004 Exam’ is short for ‘rule 2004 of the Federal Rules of Bankruptcy Procedure.’ The Nolo website describes the 2004 Exams as investigations in to the issues related to a bankruptcy. The person requesting the investigation is allowed to ask for documents and question people about such things as the locations of assets, financial transactions, and the accuracy of bankruptcy schedules.
If the person asks for such an examination, the person has to prove that he or she has ‘just cause’ to ask. If the court agrees, it will issue an order for a witness to appear at a certain time.
If the trustee or other party finds sufficient evidence for a case, he or she can file a lawsuit in bankruptcy court, which is called ‘adversary proceedings.’ (Adversary proceedings describes any legal proceedings that where one party gives notice to the other and gives them a chance to contest the facts.) The trustee will serve the initial pleadings by first class mail. Once the adversary proceedings start, the 2004 exam stops, and the scope of the questions narrows.
The court will use the adversary proceedings do several things during a bankruptcy case. It can set aside transfers it finds fraudulent, stop a debtor from discharging debts, recover property, and to determine the facts about liens fraudulently placed on bankruptcy assets.
As you can see, bankruptcy fraud is serious. If you find yourself involved in lawsuit over bankruptcy fraud, contact us. We have the information you will need.