Bankruptcy Fraud in Arizona
Filing for bankruptcy is an invasive process for the debtor. To deter bankruptcy fraud in Arizona, the court examines the debts and assets of the debtor, including assets that have been recently transferred. The court will require a list of all property the debtor owns, which includes real property and tangible personal property. If the debtor hides any of these assets, the court could find the debtor guilty of fraud, which could have civil and criminal consequences.
Brief Overview of Bankruptcy
Bankruptcy is a court process that is designed to help consumers and businesses eliminate their debts or help consumers and businesses repay those debts.iA�Bankruptcy courts are under federal law and provide federal protections.iiA�Even with the bankruptcy court within the federal realm, each and every state has their own laws and regulations to accompany the federal laws.
When it comes to filing bankruptcy, there are many options for the individual seeking help a�� whether that be an individual or a business. The different options are called a�?chaptersa�?. There are a handful of different options for bankruptcy, but the most common for individuals who wish to file are Chapter 7 bankruptcy and Chapter 13 bankruptcy.iiiA�The Chapter 7 bankruptcy is commonly referred as the a�?clean slatea�? bankruptcy, and also the a�?liquidationa�? bankruptcy.ivA�During this process, the individual will have a trustee assigned to their case that will sell off as many assets as possible a�� or liquidate a�� to pay off whatever debts the individual has.vA�There are exemptions for an individuala��s property; otherwise that individual might be left without anything. When it comes to Chapter 13 bankruptcy, the individual will create a repayment plan that will attempt to pay back some or all of their debts over the course of three to five years.viA�After that point, the court will discharge the remaining debts.
What is Bankruptcy Fraud in Arizona?
Simply speaking, bankruptcy fraud in Arizona is the act of the debtor not being truthful during their bankruptcy proceeding. This could include hiding assets, selling off assets in secret, or even not disclosing how much income the debtor has each month. These acts, among others, can result in bankruptcy fraud, which can have some serious consequences. Those consequences could include fines up to $250,000 and possible jail time of up to 20 years in prison.vii
Bankruptcy fraud will also result in the debtor not receiving their discharge a�� which is the point of filing for bankruptcy.viiiA�Practically speaking, this means that after the debtor has been found to have committed bankruptcy fraud in Arizona (prior to the discharge set), the bankruptcy trustee will still be authorized to sell of the debtora��s assets in an attempt to pay as many creditora��s as possible.A�ixA�Once that procedure is complete, the bankruptcy will be dismissed and the debtor will still owe the creditors the remaining balances.x
If bankruptcy fraud in Arizona is discovered after the debtor has already received the discharge, the bankruptcy trustee can ask the court to revoke the debtora��s discharge.xiA�The bankruptcy trustee can ask the court to do this any time prior to the case closing, and if the case has already closed, there is a one year subsequent period that the bankruptcy trustee can still ask the court to revoke the discharge.xiiA�If the court does in fact revoke the discharge, the debtor will not be able to later discharge the debts that were involved in this revocation in a subsequent bankruptcy proceeding.xiiiA�If the debtor gains new debts between bankruptcies, those debts are eligible for discharge, but the previous debts involved with the bankruptcy fraud will not.
The Adversary Proceeding
If the bankruptcy trustee does discover that the debtor has hidden assets, or committed some other type of bankruptcy fraud in Arizona, the bankruptcy trustee will file a lawsuit in the bankruptcy court, which is known as the adversary proceeding..xivA�The bankruptcy trustee must gather evidence in order to support the claim of fraud, and once enough evidence has been gathered, the bankruptcy trustee can begin the adversary proceeding.xvA�The adversary proceeding goes to a trial much faster than other matters, and does not require formal service on the party being sued.xviA�Adversary proceedings can be used to accomplish any of the following in fraud cases:
- Set aside fraudulent transfers (transfers for less than full value) and recover the property from the person or entity who received the transfer;
- Obtain turnover of hidden or undisclosed property from whoever is in possession of the property;
- Object to or revoke the discharge of a bankruptcy debtor who hasA�hidden assetsA�or attempted to transfer assets out of the reach of the trustee;
- Recover property from employees or officers who have wrongfully taken assets of businesses in bankruptcy;
- Recover property that has been wrongfully seized by creditors;
- Determine the validity, priority, and extent (amount) of liens fraudulently placed on bankruptcy assets, and
- Recover money from people who have used their bankrupt business to operate a ponzi scheme.xvii
If the bankruptcy trustee has sufficient evidence to show that the debtor has been hiding, transferring, or depleting assets (all of which will irreparably harm the bankruptcy estate), the trustee can seek emergency relief called a temporary restraining order or a temporary injunction.xviiiA�The court will have the ability to enjoin the transfer of disputed assets through the use of the temporary injunction.
The bankruptcy trustee can seek the temporary retraining order without notifying the debtor of their intent, if the bankruptcy trustee has sufficient evidence not only to prove the fraud, but that the bankruptcy trustee had previously notified the debtor that the assets would be depleted if the debtor continued their actions.xixA�Basically, the court wants to see that the bankruptcy trustee has tried to get the debtor to stop, if depletion is the issue. A full hearing on the matter will be conducted shortly thereafter.
Filing for bankruptcy is usually a last resort for individuals, or businesses, in order to climb out of the financial debt they are in. The process is very invasive, and requires a close examination of the debtora��s assets, debts, and overall income. It is important that the debtor is honest during the process; because bankruptcy fraud could result in serious consequences. If the court finds a debtor is involved with bankruptcy fraud in Arizona, it could result in financial penalties, jail time, and the revocation of the right to a discharge at the end of the bankruptcy proceeding. Always consult experienced bankruptcy attorneys in Arizona before filing.
iA�See Bankruptcy FAQ (Chapter 7 and Chapter 13). NOLO Legal Encyclopedia. (Accessed Mach 30,A�2017). https://www.nolo.com/legal-encyclopedia/bankruptcy-faq-29047.html
ivA�See A Chapter 7 Bankruptcy Overview.A�NOLO Legal Encyclopedia. (Accessed Mach 30,A�2017). http://www.nolo.com/legal-encyclopedia/chapter-7-bankruptcy-overview-29571.html
viA�See An Overview of Chapter 13 Bankruptcy.A�NOLO Legal Encyclopedia. (Accessed Mach 30,A�2017). http://www.nolo.com/legal-encyclopedia/chapter-13-bankruptcy-overview-30099.html
viiA�See What is Bankruptcy FraudA�NOLO Legal Encyclopedia (Accessed March 20, 2017) http://www.nolo.com/legal-encyclopedia/bankruptcy-fraud.html#
viiiA�See Hiding Assets in BankruptcyA�NOLO Legal Encyclopedia (Accessed March 30, 2017) http://www.nolo.com/legal-encyclopedia/bankruptcy/hiding-assets-property-bankruptcy.html
xiiiA�See Hiding Assets in BankruptcyA�NOLO Legal Encyclopedia (Accessed March 30, 2017) http://www.nolo.com/legal-encyclopedia/bankruptcy/hiding-assets-property-bankruptcy.html
xivA�See When the Bankruptcy Trustee Suspects FraudA�NOLO Legal Encyclopedia (Accessed March 30, 2017) http://www.nolo.com/legal-encyclopedia/bankruptcy-trustee-suspects-fraud.html