A forty year old man in Iowa, Keith Chapman, recently pled guilty to bankruptcy and tax fraud admitting that he made false statements in bankruptcy proceedings for Chapman Lumber. According to the Federal Bureau of Investigation’s Omaha’s office , Mr. Chapman diverted more than $450,000 from the company to a bank account and used the money for his personal benefit, including a country club membership, jewelry, golf equipment, clothes, and other items.
According to the FBI, Mr. Chapman received the following sentence:
Chapman was sentenced in Cedar Rapids by United States District Court Chief Judge Linda R. Reade. Chapman was sentenced to 46 months’ imprisonment. A special assessment of $300 was imposed, and he was ordered to make $286,492.79 in restitution; $144,897.30 to the Trustee and $141,595.49 to the IRS. In addition, Chapman was ordered to pay $2,104.63 to the United States government for costs of prosecution. He must also serve a three-year term of supervised release after the prison term. There is no parole in the federal system.
You can read about other cases involving bankruptcy fraud at the Bankruptcy Fraud Resource Center. The Internal Revenue Service website also publishes real examples of bankruptcy fraud investigations.
Anyone who files a bankruptcy proceeding is required to sign a declaration under penalty of perjury that the information they provide is true and correct. They also sign a notice, Form B201, which clearly warns that if they make any false statement or conceal any assets, they may be subject to a fine, imprisonment, or both. You can read the entire notice here.
Section 152 of Title 18 of the United States Code describes how a debtor can commit a bankruptcy crime. Some of the crimes described in the statute are:
- knowingly and fraudulently concealing any property belonging to the estate of a debtor;
- knowingly and fraudulently making a false oath or account in or in relation to a bankruptcy case;
- knowingly and fraudulently making a false declaration, certificate, verification, or statement under penalty of perjury in relation to a bankruptcy case;
- knowingly and fraudulently receiving any material amount of property from a debtor with intent to defeat the provisions of the Bankruptcy Code;
- knowingly and fraudulently concealing, destroying, mutilating, falsifying, or making a false entry in any recorded information (including books, documents, records, and papers) relating to the property or financial affairs of a debtor; and
- knowingly and fraudulently withholding any recorded information (including books, documents, records, and papers) relating to the property or financial affairs of a debtor.
Debtors who are found to have committed bankruptcy fraud face three kinds of penalties:
- may forfeit their right to receive a discharge of their debts;
- may incur criminal sanctions, including up to five years in prison and fines up to $250,000; and
- may lose their exemptions in any property that they attempted to hide or give away.
Although prosecution for bankruptcy fraud is not common, it does happen. A debtor who thinks that nobody will find out if they do not disclose an asset in which they have an interest must be weary. The penalties are harsh, and the stress and consequences just are not worth it. Make sure to tell your bankruptcy attorney everything!