After filing for bankruptcy over 10 times, “serial filer” Mark A. McFarland has been sentenced to one year in prison for his convictions on two counts of bankruptcy fraud.
One Year Prison Sentence for Serial Filer
Evidence presented at a recent sentencing hearing has established Mark A. McFarland, 58, as a serial bankruptcy filer. Serial bankruptcy filers are deemed so because of repeatedly file bankruptcy petitions with no intention of following through with their cases. Instead, serial files file the petitions in an effort to stop their creditors from collecting on owed debts.
During McFarland’s hearing, U.S. District Judge Nancy J. Rosenstengel stated she hoped the sentence would send a message to other potential serial filers. The judge specifically pointed out that individuals who attempt to use the federal bankruptcy courts to defraud creditors and make false statements under oath will face serious consequences. Rosenstengel also ordered McFarland to serve three years of supervised release after his prison sentence is concluded. The first six months of those three years will be served under home confinement. The judge also fined McFarland $3,000 and ordered him to pay a $200 special assessment.
“Criminal bankruptcy fraud threatens the integrity of the bankruptcy system, as well as public confidence in that system,” stated Nancy J. Gargula, U.S. Trustee for Indiana, Central Illinois and Southern Illinois. “I am grateful to U.S. Attorney Boyce and our law enforcement partners for their strong commitment to combating bankruptcy-related crimes, as demonstrated by yesterday’s sentencing.”
Bankruptcy fraud is taken very seriously, by courts, and also bankruptcy trustees who have been appointed to handle the case. The actions a trustee makes when bankruptcy fraud is suspected is based on the specifics of the case, who is suspected, and what form of fraud is being committed.
When a trustee suspects that fraud is occurring, but does not have sufficient evidence, the trustee is able to compel testimony and document production from almost anyone, anywhere, as part of a Bankruptcy Rule 2004 examination.
The Bankruptcy Rule 2004 examination authorizes the bankruptcy trustee to examine the following:
- the actions, conduct, property, liabilities, or financial condition of the debtor
- any matter that may affect the administration of the bankruptcy estate, or
- any matter that may affect the debtor’s right to a discharge.
In taking a closer look at 50 Cent’s case, it seems that his actions are proving that he has enough money to pay back creditors, or at least that he has enough money to flaunt it.
If a trustee is able to gather enough evidence to support the fact that fraud might be occurring, that trustee is able to file a lawsuit against the appropriate party (this can be anyone, not just debtors or creditors) as part of what is called an adversary proceeding.
Adversary proceedings are similar to typical lawsuits, but they usually proceed to trial much more quickly. A summons and complaint are served, usually through first class mail.
An adversary proceeding can be used to perform the following:
- remedy fraudulent transfers (transfers for less than full value) and recover property or money from the person or entity who received the fraudulent transfer
- obtain hidden or undisclosed property from whomever is in possession of the property
- either object to or revoke the discharge of a bankruptcy debtor who has been found guilty of hiding assets or attempts to transfer assets without the trustee’s awareness
- recover property from employees who have wrongfully taken assets of businesses in bankruptcy
- recover property wrongfully seized by creditors
- determine the validity, priority, and amount of liens fraudulently placed on bankruptcy assets, and
- recover money from people who have used a bankrupt business to operate a Ponzi scheme.
Temporary Injunctions and Restraining Orders
In cases where a trustee has enough evidence to show that the bankruptcy estate is being irreparably harmed because of fraudulent transfers and does not have time to wait for an adversary proceeding to be concluded, the trustee is able to seek emergency relief through a temporary restraining order or a temporary injunction.
With this motion, the court is able to prohibit the transfer of disputed assets and can also use this to allow the trustee to take possession of the assets once the adversary proceeding has occurred. If the trustee has enough evidence and an affidavit stating that if the person committing the fraud is notified of the upcoming adversary proceedings that they will deplete the assets even more, then a temporary relief is able to be granted without first notifying the person in possession of the assets. Typically, a full hearing will take place within 10 days of the order being requested.
Four Common Forms of Bankruptcy Fraud
Bankruptcy fraud is a white-collar crime taking form in about four typical ways:
1. Debtors conceal assets in an attempt to avoid having to forfeit them.
2. Individuals intentionally file false and/or incomplete forms.
3. Sometimes individuals file multiple times utilizing either false information or real information but in several states.
4. The last form of fraud involves bribing a court-appointed trustee.
Often times one of these forms of fraud will be coupled with a second crime such as identity theft, mortgage fraud, money laundering, and public corruption.
Concealed Assets as Bankruptcy Fraud
Almost 70% of all bankruptcy fraud involves concealing assets. Because creditors only liquidate assets disclosed by the debtor, any undisclosed assets could be kept by the debtor without the court knowing. If the debtor fails to reveal certain assets, the debtor can keep the assets despite owing an outstanding debt. Often times, to further conceal the assets, businesses or individuals may transfer these unrevealed assets to friends, relatives, or an associate.
Petition Mills Bankruptcy Fraud
Petition mills are a type of bankruptcy fraud that’s on the rise. Petition mills passing themselves off as consulting services allege they are able to keep financially-strapped tenants from becoming evicted. So while a tenant believes they are receiving help to avoid eviction, the petition mill actually files the tenant for bankruptcy, dragging out the case while charging the tenant exorbitant fees in “service” charges, emptying the tenant’s savings account, and ruining the tenant’s credit score.
Multiple Filing Fraud
Multiple filing fraud consists of filing for bankruptcy in multiple states. The filer either uses the same name and information, or uses aliases and fake information, or some combination thereof, in an attempt to provide more cover for concealing assets. These multiple filings can slow down the court systems’ ability to process a bankruptcy filing and liquidate the assets.
Working With a Bankruptcy Attorney
Bankruptcy law can be hard to understand. Because of this, it’s highly advised that you work with a bankruptcy attorney that can walk you through the process and clarify any questions or concerns you might have. There can be a lot of questions during this extremely stressful time. Let the lawyers at Resnik Hayes Moradi LLP walk you through the process so you can achieve the best outcome possible.