Bankruptcy fraud is a serious crime, as the story of Brent Farris illustrates. According to the Kansas City Star, St. Louis resident Farris pleaded guilty to bankruptcy fraud in 2004 but fled the country and avoided getting caught until earlier this year.
Here’s a look at his somewhat sensational case.
- In 2002, Farris, who at the time owned an art gallery in St. Louis, reportedly filed for bankruptcy.
- During the case, he concealed from his bankruptcy trustee a painting worth about $300,000 with the intention of selling it later and keeping the profits.
- The trustee suspected fraud and when Farris faced charges in 2004, he pleaded guilty and was sentenced to 20 months in prison and a fine of $300,000.
- Farris reportedly fled the country before his sentence began and spent the next five years (from 2004 to 2009) on the lam, hopping between 14 countries.
- In 2009, sources note that Italian authorities apprehended Farris, but he managed to break his house arrest and flee again.
- Last year, Farris was discovered in Mexico. In March, he apparently pleaded guilty to the charges of failing to appear in court and was sentenced to 14 months in prison.
Who Does Bankruptcy Fraud Hurt?
In order to understand why the penalties for bankruptcy fraud are so severe (the maximum sentence is a five-year prison sentence and damages or fines up to $500,000), it helps to understand who’s hurt by bankruptcy fraud.
- Bankruptcy protection is designed to help consumers. By giving consumers an alternative to repaying their financial obligations as originally agreed, bankruptcy provides a sort of emergency exit for those who get in over their heads financially.
- Bankruptcy can hurt creditors. Of course, when a person does not repay a debt, someone loses out. Both Chapter 7 and Chapter 13 bankruptcy are designed so that creditors are often able to recover some of the money they lent to filers, though usually not the full amount the filer owes.
- Bankruptcy fraud cuts into the creditors’ repayment. Concealing or transferring property before bankruptcy (or otherwise engaging in fraudulent behavior) reduces the amount of money creditors get from a bankruptcy case. And while it’s easy to paint the creditors as the bad guys, it’s important to remember that they’re often powerful organizations. Translation: if too many big companies are unhappy with the way bankruptcy laws work, they’ll likely lobby Congress until those laws are changed. After all, such changes were already introduced in the form of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
If you’re considering a bankruptcy filing, it’s important to make sure you avoid committing fraud, either intentionally or accidentally. A bankruptcy lawyer in your state can explain the laws more explicitly and help you keep your paperwork aboveboard.