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Thursday, January 26th, 2012

JPMorgan Chase Accused of Bankruptcy Fraud in Class Action Suit

A class action lawsuit being brought against JPMorgan Chase alleges that the bank engaged in fraudulent activity in tens of thousands of bankruptcy cases.

The suit claims that the bank actively deceived many people involved in the bankruptcy process, including Chapter 7, Chapter 13, and Chapter 11 trustees; bankruptcy judges; creditors; creditor attorneys; debtors, debtors in possession, and debtors’ attorneys; and the Office of the United States Trustee.

Among the charges being leveled against Chase are that the bank did the following:

  • Committed fraud, perjury, and intentional misrepresentation in bankruptcy court by producing false title transfer evidence (sources claim that the bank used PhotoShop in some cases) in order to “prove” its stake in thousands of bankruptcy cases.
  • Provided manufactured evidence to willfully deceive those involved in the bankruptcy process about who truly held class members’ non-negotiable promissory notes.

What Is Chase Actually Accused Of?

In plain English, Chase is facing charges of providing false evidence regarding home mortgages in bankruptcy cases. Specifically, the lawsuit alleges that:

  • Chase fabricated documents that recorded its chain of ownership of residential mortgage loans. In order to be able to claim ownership of mortgage debt in bankruptcy court (or any court), a person must have a hard copy of the mortgage’s promissory loan (also called a Master Loan Note, or MLN). Because of electronic mortgage registration systems and securitization of mortgages (two factors that greatly contributed to the expansion and burst of the housing bubble), however, most banks no longer hold paper MLNs.
  • Chase presented falsified documents in bankruptcy court. In order to “prove” that it was the lender to whom a bankruptcy filer owed money, Chase allegedly presented these fabricated documents to bankruptcy courts (because it did not have actual documentation).
  • Chase rewarded lawyers for speedy action. During a bankruptcy case, filers are protected from collection actions like foreclosure by the automatic stay. But creditors can petition the court to lift that stay in order to collect on certain debts. In Chase’s case, the charges claim, the bank rewarded attorneys for producing false documents quickly and convincing the court to lift the stay quickly so that Chase could foreclose or collect money on a bankruptcy filer’s home.

Who Is Affected By the Class Action Suit?

The class named in the suit (Ernest Michael Bakenie v. JPMorgan Chase Bank, N.A., filed in the Central District of California) includes bankruptcy filers who live in California. To find out whether you are a member of the class, you can consult with a bankruptcy lawyer in your area.

Plaintiffs in the suit are seeking damages, restitution, injunctive relief, and disgorgement of profits.

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Posted in Bankruptcy News and Events, The Law and Your Money | 1 Comment »

Thursday, December 15th, 2011

Future Income and Bankruptcy Fraud

Every so often, there’s a local news story about someone who has been convicted of bankruptcy fraud. This week, the case belongs to one George Raynor, of Baileyville, Maine. While the case itself isn’t exceptional in any way, it highlights an important precaution for potential bankruptcy filers to note in order to avoid a fraud conviction.

What Is Bankruptcy Fraud?

Bankruptcy fraud is exactly what it sounds like: a bankruptcy filer’s provision of false information to the court that alters the outcome of his or her bankruptcy case. In some cases, bankruptcy fraud can be unintentional, but its penalties are steep: those convicted of bankruptcy fraud might face up to five years in jail and up to $250,000 in fines.

Common examples of bankruptcy fraud include an attempt to shield property from the court; a filer might attempt to transfer property from his or her name to the name of a friend or family member or might simply fail to report ownership of a piece of property or sum of money.

But bankruptcy fraud can also occur when a filer fails to mention income he or she is expected to receive in the future. Raynor’s case falls into this category.

Reporting Future Income in Bankruptcy

According to the Bangor Daily News, Raynor and his wife filed a bankruptcy petition in 2006 but, in their list of assets, did not mention:

  • A savings account in a bank;
  • A deferred compensation retirement account valued at roughly $150,000;
  • A lump sum payment from his retirement account in the amount of $97,000; and
  • A payment from his former employer of $12,000 as compensation for unused sick and vacation days.

Now convicted of the charges, Raynor could see as much as five years behind bars and fines of up to a quarter of a million dollars. To date, Raynor’s sentencing has apparently not been scheduled. Often, the amount of the fine assessed on a bankruptcy fraud conviction roughly equals the amount of money or value of property that the filer attempted to withhold from the court.

Avoiding Bankruptcy Fraud in Your Filing

One of the easiest ways to avoid bankruptcy fraud is to work with a bankruptcy lawyer. Working with someone who is familiar with state bankruptcy laws and the procedures of the bankruptcy court can go a long way toward avoiding mishaps that could delay or derail a case.

Lawyers can also advise filers about which of their assets they must list, whether gifts or property transfers will be considered legal by the court, and what outcomes they can expect from their bankruptcy case.

In cases where a filer may have future income due to him or her, a lawyer can help determine how to calculate the value of that income and how to report it on bankruptcy filing paperwork.

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Posted in The Law and Your Money | 1 Comment »

Wednesday, July 27th, 2011

Bankruptcy Fraudster Finally Headed for Jail

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.

Consider this:

  • 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.

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Posted in The Bankruptcy Courts, The Law and Your Money | No Comments »

Thursday, June 30th, 2011

Bankruptcy Fraud Investigation Continues after Fraudster’s Death

The Wall Street Journal reported this week on a man whose bankruptcy case has outlived him. And he’s not too sympathetic a character: after defrauding clients of his business out of $19 billion, the man was reportedly put into federal prison.

Sources indicate that the fraudster, Barry Stokes, died in a hospital there before his bankruptcy trustee had been able to work through his case. As of now, reports note that:

  • Hidden assets are still missing: This unsavory fellow apparently owned a lot of (somewhat) valuable art but hid it before his death. Most was found, but the trustee is still hunting some of it down. The proceeds from a sale of the art would go to his creditors.
  • Liquidation won’t help much: Unfortunately, even though some pieces of the art could be worth upwards of $25,000, the money won’t do much for his debts of more than $30 million.

Fraudster Used Clients’ Retirement Funds to Buy Art

The details of this particular bankruptcy case are heartbreaking. Too often, individuals struggling with debt dip into their retirement accounts in an effort to stave off creditors and avoid filing for bankruptcy. And in many cases, people like this end up in bankruptcy anyway, without any nest egg for their retirement.

In this case, Stokes ran a business that managed people’s retirement funds and skimmed whatever he wanted from those funds for personal purchases. Now, his clients are his creditors in bankruptcy and have filed claims for more than $30 million.

The worst part? Because Stokes reportedly didn’t have much in the way of valuable assets, these people will likely not see much of their retirement money again!

Bankruptcy & Retirement Funds

For the record, retirement funds have a special place in bankruptcy:

  • Exempt from creditors: Whether you file for Chapter 7 or Chapter 13 bankruptcy, the bankruptcy court typically will not go after your retirement funds during a bankruptcy case. The idea is that these funds will keep you financially sound in the future and so it’s in everyone’s best interest to leave them alone.
  • Heavily taxed: What’s worse, people who withdraw retirement funds early face serious tax penalties. That means they don’t get the full benefit of the funds either in the present or the future!
  • Irreplaceable: Most of us accumulate money for retirement gradually, over several decades. Using that money for debts can seriously damage your long-term financial health because it’s close to impossible to replenish the supply.

The bottom line about retirement funds: they’re safe in bankruptcy. If your nest egg is the only thing between you and the bankruptcy court, you might want to keep it safe and talk to a bankruptcy attorney about filing a petition.

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Posted in Bankruptcy News and Events | No Comments »

Monday, June 13th, 2011

Inherited Money in Bankruptcy

One question that many potential bankruptcy filers have is how the bankruptcy court handles inherited money and money that bankruptcy filers expect to receive in the months after their filing. The answer depends on a few variables. Here’s a look at some of them.

  • The 180-day rule. One of the most important rules about bankruptcy and inheritance is that funds inherited within 180 days (or about six months) of the filing of a bankruptcy petition are generally considered to be part of the bankruptcy estate. This means that the bankruptcy court has the right to use those funds to repay creditors, pay court fees or do anything else it deems appropriate.
  • Date of death. In the case of money inherited from a deceased person’s estate, the date of death will be taken into consideration. If the person died within the 180-day window, then the funds generally go to the bankruptcy estate, even if the filer doesn’t receive them until some time later.
  • Type of inheritance. Another factor bankruptcy courts consider is how a person inherited money. Depending on laws in your state, the court might treat an actual will differently than another type of contract designating you as heir to certain money or property. A bankruptcy lawyer in your state can help you figure out how the court is likely to treat your expected inheritance.
  • Exemptions. In some states, inherited property might be protected by bankruptcy exemptions. In certain cases, even if an inheritance falls within 180 days of a bankruptcy filing, the filer may be able to keep the inherited property.
  • Bankruptcy fraud. It’s important to note that filers must report any expected inheritance on their bankruptcy petitions. If a filer tries to lie about or conceal inherited assets, the court could convict him of bankruptcy fraud, which is punishable by a serious fine and up to five years in jail.

Inherited Money & Debts

If you have reason to expect that you will inherit money or assets in the near future, it’s a good idea to start thinking now about how you plan to use that money. While debt repayment is one option, it’s not the only one.

Consider speaking with a financial adviser about your options for setting up an emergency fund, negotiating your debts, and taking money management or investment classes. If you have debt, taking advantage of an influx of cash to improve your overall financial system may be more effective than simply making a one-time debt repayment.

Alternately, if you’re expecting an inheritance and wondering whether or not filing bankruptcy makes sense for you (either now or later), you may want to seek the counsel of a bankruptcy attorney.

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Posted in Filing Requirements, The Law and Your Money | No Comments »

Wednesday, May 25th, 2011

Bankruptcy Contempt Case Highlights Important Rules

A recent news article from LoanSafe.org tells the story of a woman who broke some important bankruptcy laws and ended up with almost $48,000 in fines to pay, on top of a five-year probation period. If that doesn’t sound like a good deal to you, read on to find out what she did wrong.

According to sources, the woman’s case worked like this:

  • In 2005, the woman in question filed for Chapter 7 bankruptcy. Chapter 7 is designed to help filers eliminate certain unsecured debts without making creditor payments through a repayment plan (that only comes into play in Chapter 13 bankruptcy).
  • As bankruptcy law requires, the woman testified to the completeness and accuracy of the information in her bankruptcy petitions as part of the Chapter 7 process.
  • Before filing her bankruptcy petition, the woman apparently transferred a piece of property (worth more than $47,000) to her son. She did not mention this transfer in her bankruptcy documents.
  • After the Chapter 7 case ended, the woman reportedly sold the “transferred” property and used the money to buy a home in a different state without reporting the proceeds of the sale.

Avoiding Bankruptcy Fraud

The woman’s crime was that she improperly transferred property with the intention of shielding it from the bankruptcy court. Had she proceeded lawfully without transferring the property, it would have been considered part of the bankruptcy estate.

Depending on the specifics of the woman’s case, the property might have been sold to raise money to repay her creditors in part; however, lying about the property ended up costing her in the long run.

One reason most insiders recommend that potential bankruptcy filers work with a bankruptcy lawyer is to help them avoid bankruptcy fraud, which includes all of the following.

  • Reporting incorrect or incomplete information: While the bankruptcy court may excuse honest mistakes on paperwork, more serious “mistakes” will likely lead to some legal action.
  • Attempting to repay a favored creditor before filing: Singling out one creditor (say, a family member or friend who lent you money) to repay before discharging other debts in bankruptcy is not allowed. Those who attempt to do so could face charges of bankruptcy fraud.
  • Improperly concealing or transferring property: This could be considered a branch of the “complete and accurate” rule, but it deserves its own section. Attempting to hide or pretending to give away assets to shield them from bankruptcy is not permitted.
  • Omitting known future income: Whether you’re expecting a tax refund or a hefty inheritance, it’s important to include it in bankruptcy petitions. Otherwise, you risk being charged with bankruptcy fraud.

As the story above illustrates, bankruptcy fraud is serious business: fines can get as high as $500,000 and those convicted may face jail time. Neither of those options sounds like a good way to get back on your feet financially.

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Posted in The Law and Your Money | 2 Comments »

Wednesday, December 16th, 2009

Bankruptcy Fraud Investigations Declining

Between 2003 and 2009, the number of fraud cases investigated by the U.S. Justice Department saw a steep decline—including a 44% drop in bankruptcy fraud cases, according to an article in USA Today.

Bankruptcy fraud, corporate fraud and securities fraud cases all received less attention from Federal prosecutors, according to Justice Department documents, with corporate fraud cases falling 55%, even as our country fell into economic crisis.

And while the number of new fraud cases filed in federal courts has increased over the past few months as investigators struggle to prevent another financial mess, the case load is still lighter than it was at the beginning of the decade.

What is Bankruptcy Fraud?

Bankruptcy fraud is a federal felony offense that may include concealment of assets or debts from the bankruptcy petition. Failure to include an asset when filing bankruptcy is one of the most forms of bankruptcy fraud, and often includes "giving" a valuable asset, such as a car, to a relative or friend to protect it from liquidation.

If a debtor has transferred or sold any property within two years of filing bankruptcy, such property may be taken by the bankruptcy trustee as an asset.

According to the USA Today article, the Justice Department filed only 82 charges of bankruptcy fraud in the fiscal year ending September 20, 2009—despite nearly 1.5 million bankruptcies being filed in that time.

If you're worried about accidentally committing bankruptcy fraud, it can be a good idea to talk to a bankruptcy lawyer before you decide to file.

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Posted in The Law and Your Money | 1 Comment »