In March 2014, a local businessman was ordered to spend 30 months in prison and pay more than $2 million in restitution after pleading guilty to bankruptcy fraud in Virginia.
Michael Wayne Harding declared bankruptcy in 2011. According to court documents, his company, HMC Holdings, acquired fraudulent mortgages and manufactured false invoices and other supporting documents. Mr. Harding also admitted using these stolen funds for his personal use. He stated that during his bankruptcy, he submitted false reports to the trustee and lied about forged signatures on liens, leases and other legal documents.
Mr. Harding is already the sixth defendant this year that has been sentenced for major bankruptcy fraud crimes.
Proving bankruptcy fraud in court
Fraudulent transactions in personal bankruptcies usually include providing false information to the trustee, either in writing or at the 341, or concealing or attempting to conceal assets. A fraud investigation is something like a perjury charge or an income tax audit. If the bankruptcy trustee suspects that the matter was a totally innocent mistake, the debtor has an opportunity to cure the defect and the subject is basically closed.
If, however, the trustee suspects fraud on any level at all, a Rule 2004 Examination follows shortly thereafter. This rule gives the trustee very broad power to examine any matter affecting the administration of the estate. Assuming that there is sufficient evidence, the trustee then files an adversary proceeding in bankruptcy court. In such an action, the trustee can:
- Obtain a turnover order regarding the property at issue
- Set aside a fraudulent transfer and recover the property
- Object to the discharge of the debt at issue
- Recover property that has been fraudulently removed from the bankruptcy estate (i.e. the debtor’s possession)
- Obtain an injunction to guard against future misconduct
After the civil case is over, criminal charges usually follow. The above example is a typical punishment for a serious crime.
For a free consultation with attorneys who understand the importance of full and thorough preparation of bankruptcy schedules, contact our office in Melbourne, Florida.