Forfeitures Involving Allegations of Bankruptcy Fraud

When the government wants to seize property involved in bankruptcy fraud, it often uses the catch-all forfeiture provision in 18 U.S.C. § 981(a)(1)(C) which authorizes the forfeiture of the proceeds of criminal bankruptcy fraud in violation of 18 U.S.C. § 152.

The most common scenario arises when a person files a Chapter 7 bankruptcy petition without disclosing their interest in certain property on their bankruptcy schedules in violation of 18 U.S.C. § 152(1) which prohibits the concealment of property during a bankruptcy proceeding.

Another crime might be alleged since the person filing bankruptcy might falsely state under oath that all of the information contained in the petition and schedules were true and correct and that they had listed all of their assets, in violation of 18 U.S.C. § 152(1) and (2), which prohibits the making a false oath or account in a bankruptcy case.

When bankruptcy fraud is suspected, the government might allege that as a result of the “concealment” of the “defendant property,” the person who declared bankruptcy was able to improperly retain an interest in that property after receiving a discharge in bankruptcy.

Over time, the value of that property might increase substantially. With that increase in value comes the risk that the government will want to seize it for a criminal or civil asset forfeiture proceeding.

After a person declares bankruptcy, it might cause other problems with making a claim in a civil asset forfeiture case, even if a criminal charge for concealing assets amounting to bankruptcy fraud is never prosecuted.

Attorney for Forfeitures Involving Bankruptcy Fraud

The attorneys at Sammis Law Firm understand the unique issues that can arise when the government seizes property that was allegedly involved in criminal bankruptcy fraud.

We represent clients facing a civil or criminal asset forfeiture proceeding. We also represent third parties, including a spouse, lien holder, or innocent owner if their property is swept up in such a proceeding.

To discuss your civil or criminal asset forfeiture case, call an experienced attorney at Sammis Law Firm.

Call 813-250-0500.

Showing the Property’s Connection to Bankruptcy Fraud

To prevail in an action under 18 U.S.C. § 981(a)(1)(C), the government must prove by a preponderance of the evidence that the property is subject to forfeiture. See 18 U.S.C. § 983(c) (“In a suit or action brought under any civil forfeiture statute for the civil forfeiture of any property . . . the burden of proof is on the Government to establish, by a preponderance of the evidence, that the property is subject to forfeiture”).

When the government contends that the “defendant property” is subject to forfeiture under 18 U.S.C. § 981, that statute permits forfeiture of “[a]ny property, real or personal, which constitutes or is derived from proceeds traceable to . . . any offense constituting ‘specified unlawful activity’ (as defined in section 1956(c)(7) of this title), or a conspiracy to commit such offense.”

Section 1956(c)(7), in turn, defines “specified unlawful activity” as “an offense under . . . section 152 (relating to concealment of assets; false oaths and claims; bribery).” 18 U.S.C. § 1956(c)(7)(D).

The government might assert that the “defendant property” is the proceeds of criminal bankruptcy fraud under § 152. If so, it must therefore show by a preponderance of the evidence that the property is the proceeds of bankruptcy fraud and that there is a substantial connection between it and the criminal conduct.

Read more about federal civil asset forfeiture proceedings under CAFRA.

Case Law on Forfeiture Proceedings Alleging Bankruptcy Fraud

In United States v. All Funds on Deposit in Lee Munder Wealth Planning Resource Account, 137 F. Supp.3d 125, 129-30 (D. Mass. 2016), the court granted the motion to dismiss with prejudice for failure to allege sufficient facts to support each of the elements of the bankruptcy fraud offense on which the forfeiture was based.

In United States v. $66,369 in U.S Currency, 2019 WL 3003687 (E.D. Mich. Jul. 10, 2019), the Government moved for a judgment on the pleadings under Rule G(8)(c) alleging the Claimant lacked standing. The court reasoned that although it must assume claimant’s factual allegations are true, it need not accept legal conclusions such as claim of “ownership” that had no factual basis. As a result, the bankruptcy trustee’s claim was dismissed despite its claim of ownership where the court had previously ruled the defendant property was not part of the bankruptcy estate.

Additional Resources

Justice Manual in Title 9 Criminal 9-41.000 for Bankruptcy Fraud – Visit the Department of Justice Manual to learn more about how allegations of bankruptcy fraud are reported to the appropriate United States Attorney to investigate the filing of criminal charges or the initiation of forfeiture proceedings. The manual explained why Section 3057(a) of Title 18, United States Code, requires a trustee, receiver, or judge that suspects bankruptcy fraud must report those suspicions to the appropriate United States Attorney. After receiving he report, the United States Attorney must determine whether an investigation should be commenced. If so, upon completion of this investigation, the United States Attorney must decide whether a criminal action is warranted or whether property should be seized for civil asset forfeiture.

This article was last updated on Friday, January 20, 2023.