How To Commit Bankruptcy Fraud
Readers of our blog know that bankruptcy fraud seems to get detected, prosecuted and results in no discharge of your debt. So why does it continue? We don’t know, but here’s a story that takes place in the southwest involving a fake corporation, collusion with a relative and, of course, jail time for the perpetrator.
Chapter 7 Personal Bankruptcy
Chapter 7 bankruptcy is a wonderful federal and state law, which enables folks with insufficient income and assets to pay off their debt, to discharge their debt legally. It entitles you to get a “fresh start”. In my 29 years of practicing law, I have helped hundreds of clients get their deserved, entitled and legal “fresh start.”
Bankruptcy takes 90 days from filing to discharge. Prior to filing, you work with your attorney to carefully prepare your federal bankruptcy petition and schedules. Your attorney will secure paperwork to confirm the assertions in the documents. Your attorney will forward some of the documents to the federal trustee so verifications can be made. The US Trustee’s Office will investigate some of the basic attributes of the petition; for example, they would likely do a real estate search.
Bankruptcy Fraud in Arizona Case
The story in Arizona has twists and turns that read like a movie script. The debtor in personal bankruptcy was a professional marijuana operations manager, for Revolution Distribution Company of Phoenix, Arizona. He earned $5,000 per month according to his bankruptcy petition and schedules. His debt exceeded $300,000, to various banks and
credit unions. He also owed student loans and a personal loan.
So far, except for the profession, the above facts read like one of the many personal bankruptcies we have filed in the Massachusetts Bankruptcy Court on behalf of our clients.
Internal Revenue Service Investigates Bankruptcy Debtor
For whatever reason, the US IRS undertook an investigation. Perhaps in reviewing the debtor’s tax returns something did not match – income, payroll taxes on the “company” or something else.
The IRS found that the debtor, John Endres, had made a $25,000 deposit on a 6,700 square foot home that had a purchase price of $1.5 million. After the bankruptcy was complete, he immediately wired $288,630 from a bank account he had set up under the name of iMedia. The account, in Nevada, had more than one million dollars in it. Of course this account was not listed on Mr. Endres bankruptcy petition and schedules, which he had signed under the pains and penalties of perjury. Furthermore, he had testified at the bankruptcy trustee hearing that the petition and schedules were true and accurate and that there were no additional assets.
The investigation, by the IRS and the US Drug Enforcement Agency, found that Mr. Endres had been making bimonthly deposits of $2,500 to $54,000, from side marijuana earnings! The deposits into the Nevada bank were in the name of iMedia, a company which was merely a shell for funneling off funds from the marijuana distribution business where his declared income was different from his actual take.
Bankruptcy Debtor Pleads Guilty
Mr. Endres was indicted in 2102 and prosecuted in federal court for one count of bankruptcy fraud, one count of concealing assets and ten counts of making false declarations on a federal bankruptcy petition; recently, he pled guilty ton one count of bankruptcy fraud. His sentence was one year in federal prison, repayment of $323,000 to ten creditors and probation.
How to File for Bankruptcy and Stay Out of Jail
Tell the truth. Plan your bankruptcy with an experienced bankruptcy lawyer, such as Attorney Neil Burns. There are many ways to protect assets, legally. These include the federal and Massachusetts Homestead, maximizing IRA, Roth IRA and 401k account deposits, as well as other legal means of protecting assets.