I’m Eric Lanigan with Lanigan and Lanigan
attorneys in Winter Park, Florida. As most of you know we, over the last many
years, have done quite a bit in the bankruptcy field. I’m often asked in all types of bankruptcies,
whether it’s business or personal, you know, what is bankruptcy fraud? And I guess I can
answer it succinctly. Bankruptcy fraud is a felony. It’s serious business. It’s committing
perjury. It can put you in jail. So, anybody that is coming in to see us, or
any other lawyer, in regards to bankruptcy you know, a few bucks in debt one way or the
other, which probably is not going to get paid anyway, whether in bankruptcy or not,
is never going to be enough to risk going to jail. Because as one lawyer said to me
one time after his house had been washed away in a flood, he said, “Well, if money is your
problem then maybe you really don’t have a problem.” Then he had a great attitude about losing
his house and I have always remembered that statement. If money is your problem, maybe
you don’t really have a problem. Well, yes you probably do. But that money problem is
nothing compared to spending several years in an orange jumpsuit and little rubber sandals.
So, bankruptcy fraud is a felony. Now there is a lot of issues about what really
constitutes fraud. Now there’s a lot that goes on in bankruptcy planning that is I believe
is perfectly legitimate and it’s things that we do on a regular basis. And as I’ve said
to many people like tax law, which by the way it’s written, creates certain incentives
to do something and disincentives to do something else. Well, bankruptcy law does the same thing.
By the way it’s written, it is naturally going to create an incentive to do one thing and
a disincentive to do another. For instance, one of the things we run into often is where
both the husband and the wife work. We had a case recently where both the husband
and the wife had very very good incomes. The husband made slightly more than the wife did
but all the savings that they had accumulated was in her bank accountant. Not really savings but money that recent earnings
that had not been spent and the reason was is because they were using his bank account,
his paycheck to make the mortgage payment and the car payments and all the other expenses
that go along with daily life. Well, in bankruptcy the income of the head
of household is exempt income earned during the six months preceding the bankruptcy is
exempt. Irrespective of what amount it might be. I filed a case, the largest case I ever filed,
with an exemption for earnings within the previous six months, was $38,000. And you
know the trustees don’t like it because obviously, they would like to be able to get that money,
but the law is the law. And I had it recently come up where we go
into the, into bankruptcy with that exact same couple where I had advised them stop
spending the husband’s earnings. Start spending the wife’s earnings. Because if you’re talking
about bankruptcy, why would you want to spend money that would otherwise be exempt and accumulate
money that won’t be exempt and the creditors would take? So, the bankruptcy law creates an incentive
to spend the earnings of the lower income earner and accumulate the earnings of the
higher income earner. That is not fraud. First of all, it’s fully disclosed and second of
all, it is merely responding to the incentives and disincentives that are within the law.
And there’s a big difference between those two things. Another thing that always comes up is credit
cards and I’ve always had a very simple statement with credit cards. I’ve said now that you’ve
been in my office; you’ve talked to me about bankruptcy. From this point forward if bankruptcy
is an option that you’re going to consider it’s real simple. Don’t pay them, don’t use
them. Because you’re not going to pay a bill that
in a month or two or three or six is going to be completely discharged in bankruptcy.
That would be there’s a complete disincentive to do that so why would you do it? And it’s
certainly not fraud not to do it. Now, where can you get into a problem with
fraud? Well somebody thinks they’re too cute by a half and they go, well my recent taxes
are not dischargeable in bankruptcy but my credit cards are. So what I’m going to do
is, I’m going to pull money out of my credit cards to pay off my tax bill discharge the
credit card bill and aren’t I cool because look what I did. I manipulated the system. Well, it’s not going to work. You’re not going
to go to jail for doing that but if it comes out to light you’re probably going to be denied
a discharge or, at the very least, that credit card debt is not going to be discharged. So
there is fraud, which is out and out lying to the court. I had a situation recently where an individual
owned a condominium with a relative in a city you know over a thousand miles from here several
states over. And we’re going through their whole scenario when I’m thinking to myself;
well this is going to be easy. And then sure enough as often happens, well, there’s one
more thing I forgot to tell you and you go okay here it comes. And so she tells me that well I own this condo
with my relative in such and such city and we probably have about $300,000 of equity
in this condominium. So her half is a hundred and fifty thousand. So my first thought is
you couldn’t tell me that from the beginning but wait 45 minutes an hour before that finally
comes out? And then we immediately talked about well
that pretty well blows the whole concept of filing bankruptcy. We’re going to have to
move to another method to deal with this debt and this person responds to me, “Well, you
know, gee, do you think they would really ever find out about that?” And it’s just amazing. You think well, if
they do you’ll go to jail and I’ll lose my license to practice law. So I don’t really
don’t care what the odds are that they find out. I’m not going to lose my license to practice
law and I’m not going to watch you get carted off to jail. So, what are the odds? I don’t
know. I don’t care. I’m not doing it. I had that happen in a case one time and the
guy was in my office and he had this very big bright gold Rolex watch and I made a comment
about what type of exemptions they had. And he sort of looks at his watch and he says,
“Well don’t worry this will disappear.” And I thought to myself well no, I think what’s
going to disappear is you. And I literally just got up and I very calmly walked around
my desk and I said well Mr. Jones it was very nice to meet you and I wish you luck getting
all your problems resolved but not that way. Not here. And so have a nice life. See you
later. The most important thing I think to remember
is unless you are just an out and out criminal and you’re just using bankruptcy as a method
to scam people out of money, inevitably, even if bankruptcy is not the resolution, the safe
resolution of your issues. There are a lot of different ways to deal
with debt and to deal with it effectively. It may not be as cheap as bankruptcy but it
will certainly keep you out of jail and it will be a lot less expensive than what you
think it will be. So, if you think you’re committing fraud then
step back. Get advice early and often. If you’re thinking bankruptcy might be an issue
and if I do this would that be fraud or is it a legitimate pre-bankruptcy planning tool
that can be used? Again, I’m Eric Lanigan with Lanigan and Lanigan
attorneys in Winter Park.