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BANKRUPTCY FRAUD – WHAT IS THAT?

  • Bankruptcy
  • Clint W. Smith, P.C.
  • No Comments
  • April 11, 2013

BANKRUPTCY FRAUD – WHAT IS THAT?

We’ve had another public disclosure of some bankruptcy fraud in the state of Idaho.

A woman named Shauna Pennington was found guilty, in Criminal Court and in the Bankruptcy Court, of having provided false financial information and other things. Here’s what happened:

In March of 2010 she apparently went to a bank to obtain a loan, did not disclose certain debts that she had, included more money in her bank accounts than she actually had and misstated her income. It’s not clear how much due diligence the bank did there; it probably could have identified some of those problems, but it is entitled, in those situations, to rely on specific representations that people make in conjunction with a loan application.

So, here’s the timeline: March of 2010 she gets this loan, December 2010 files for bankruptcy and does not disclose all of her creditors. So that’s another problem: In bankruptcy, you are required, under oath, to disclose all of your creditors. And if you don’t, you violate bankruptcy law which provides penalties and criminal sanctions and all kinds of things for that failure.

So, Ms. Pennington was prosecuted by the United States Attorney’s office, for a federal offense. Both the misrepresentation to a federally insured financial institution, and the false representations in the bankruptcy proceeding. She was sentenced, and it was a pretty ugly situation.

There’s a lot of information floating around out there, talking to friends, looking on the Internet, whatever. People will tell you it’s not that big a deal and everybody leaves things off of their schedules, that you don’t have to disclose certain things. That is all false. The fact is, the Bankruptcy Code requires full disclosure of all information of which you have possession, in order to get a bankruptcy discharge and to comply with the law.

And under penalty of perjury, on at least two occasions, you are going to have to swear to that. That is, when you file your paperwork it says right by the signature lines “under penalty of perjury I affirm this information to be correct”. And then you go to a thing called a meeting of creditors where you raise your right hand, you take an oath with the bankruptcy trustee there to tell the truth about the information that is in your schedules and any other question he may have.

And that is a big deal. When you take an oath, it is a big deal. So let’s not take that lightly. And if somebody has told you not to disclose certain things and that it’s okay and it’s normal, don’t believe it, it’s false. You must tell all of those things to your attorney, and I do suggest, in most cases, having an attorney to file bankruptcy. If you don’t have much going on, I don’t have a problem with that, and I discuss that elsewhere.

But if you are going to an attorney, you need to give the attorney the whole picture. And if she doesn’t have it, she’s going to have a difficult time representing you. If you tell her, then she’s going to tell you things that maybe you don’t want to hear, such as, yes, you do need to disclose that boat in your backyard or other types of assets.

But you must give her that opportunity, and you don’t want to go afoul of these bankruptcy laws because they are serious and they are prosecuted and they do result in criminal sanctions.

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