How often Does Bankruptcy Fraud Occur?

One boogeyman that politicians and banks sometimes bring up is bankruptcy fraud, which is a federal crime as well as a collection of civil and other criminal acts committed by petitioners to abuse the bankruptcy system to their advantage. Creditors often think it’s rampant, so rampant in fact, that one of the purposes of the Chapter 7 means test is to reduce the likelihood that people can discharge debts they can pay off. It’s also a reason Congress tightened the restrictions on student loans in bankruptcy.

Bankruptcy fraud begins with the U.S. trustee, who oversees the process in which the debtor’s assets are liquidated and sold to creditors. If, after the meeting of the creditors that occurs shortly after filing, the trustee believes the debtor is concealing assets or committing some other kind of financial shenanigans, he or she will refer the case to IRS, the Department of Justice, and the FBI. These agencies follow up on it. The FBI opens a case if it believes it’s warranted, and begins reviewing financial documents and conducting interviews. If its agents conclude a crime has been committed, it goes the same process as a police force, warrants, arrests, jail, indictments, etc.

But how often does it actually occur?

The IRS has started maintaining data on the subject, and the conclusion is … it’s pretty rare.

  • In fiscal years 2009-2011 (that’s October 2008 to September 2011) only 70 investigations were initiated, no more than 30 total per year.
  • In the same period federal prosecutors filed only 43 indictments or informations, no more than 20 per year.
  • 57 people were sentenced, and in each of the three years more than half of those sentenced were incarcerated.
  • Sentences ranged from 31 to 36 months.
  • These cases do not all occur within the same year. According to the FBI, close to 300 cases are pending at any one time.
  • Since 2008, the total number of bankruptcies filed per year exceeded 1,000,000.

As you can see, bankruptcy fraud is extremely uncommon, and if you are considering filing bankruptcy in Las Vegas, you shouldn’t worry that federal authorities will hound you without cause. However, hiring experienced, ethical bankruptcy lawyers is an important way to prevent your bankruptcy case from raising flags through mistaken omissions of property and income, or filing with incorrect identification.

For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-880-5554 to set up your free consultation.

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