When the FBI Comes Calling…®

BANKRUPTCY FRAUD (Continued)

18 U.S.C. § 157 (2007).

Section 157 was amended on April 20, 2005. P.L. 109-8, 119 Stat. 103.

  • A person who, having devised or intending to devise a scheme or artifice to defraud and for the purpose of executing or concealing such a scheme or artifice or attempting to do so--
    • (1) files a petition under title 11, including a fraudulent involuntary bankruptcy petition under section 303 of such title;
    • (2) files a document in a proceeding under title 11, including a fraudulent involuntary bankruptcy petition under section 303 of such title; or
    • (3) makes a false or fraudulent representation, claim, or promise concerning or in relation to a proceeding under title 11, including a fraudulent involuntary bankruptcy petition under section 303 of such title, at any time before or after the filing of the petition, or in relation to a proceeding falsely asserted to be pending under such title,
  • shall be fined under this title, imprisoned not more than 5 years, or both.

Case Law Interpreting Pre-Amendment Section 157
In one case interpreting section 157, the defendant promised to obtain refinancing on several homes, misidentified himself to conceal his involvement, falsely informed the homeowner that her home had not been foreclosed on, falsely listed a homeowner as a landlord, formed shell companies for the sole purpose of filing bankruptcy, facilitated invalid partial conveyances, and filed bankruptcy petitions containing false information. United States v. Daniels, 247 F.3d 598, 600-01 (5th Cir 2001). This evidence was more than sufficient to convict the defendant under section 157.

Furthermore, section 157 is worded in such a way as to make "attempted bankruptcy" under this section arise only in the unusual situation of the unsuccessful attempt to file the bankruptcy petition itself. United States v. Desantis, 237 F.3d 697, 613-14 (6th Cir. 2001). In other words, an unsuccessful scheme to defraud creditors of a given amount of money will not constitute a violation of 18 U.S.C. § 157(1). Id. at 613. The elements of a violation of section 157(1) that need to be proven are, therefore:

  1. the existence of a scheme to defraud or intent to later formulate a scheme to defraud and
  2. the filing of a bankruptcy petition
  3. for the purpose of executing or attempting to execute the scheme. Id.

The crime is completed upon the filing of the bankruptcy petition when the filing is accompanied by the other two defined circumstances. Id.

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