Bankruptcy Fraud: Crime and Punishment
![handle is hein.journals/sdlr43 and id is 535 raw text is: BANKRUPTCY FRAUD: CRIME AND PUNISHMENT
CRAIG PEYTON GAUMER*
I. INTRODUCTION
American bankruptcy law has dual - and sometimes dueling - goals.
The bankruptcy system was designed to provide financial relief for debtors
and to give creditors involved an equitable share of assets in satisfaction of
the debts they are owed.1 The system depends on the honesty of those who
participate in it. When debtors, creditors, trustees, or others involved in
the bankruptcy process attempt to beat the system, it becomes more diffi-
cult, and certainly more costly, to pursue the fair debt relief and fair repay-
ment objectives. Consequently, Congress long-ago established a number of
criminal statutes to prevent and address abuse of the bankruptcy system.2
Bankruptcy frauds can take several forms. Unscrupulous debtors may
make false statements under oath, may under-report assets, or may other-
wise attempt to circumvent the correct operation of the bankruptcy system.
Iniquitous business entities may devise crafty schemes to defraud creditors
and avoid legitimate debts. Petition mills may take advantage of disheart-
ened wage earners who believe they have nowhere else to turn. Bank-
ruptcy trustees, or their employees, can misappropriate trust funds.
Whatever form it takes, bankruptcy fraud perverts a system intended to
give honest debtors a chance to reorganize their affairs in an equitable
manner that is also fair to creditors.
Some commentators have suggested that bankruptcy fraud is a crime
without punishment.3 Nothing could be further from the truth. The U.S.
* Adjunct Professor of Law, University of South Dakota; Assistant U.S. Attorney, U.S.
Department of Justice (District of South Dakota); Coordinator, Bankruptcy Fraud Task Force,
District of South Dakota; Member, Bankruptcy Fraud Working Group of the Executive Office of
U.S. Attorneys, U.S. Department of Justice; Former Law Clerk to the Honorable Frank W.
Koger, Chief Judge, U.S. Bankruptcy Appellate Panel for the Eighth Circuit and U.S. Bankruptcy
Court for the Western District of Missouri.
The views expressed in this article are solely those of the author and should not be attributed
to the U.S. Department of Justice, the U.S. Attorney for South Dakota, Chief Judge Koger, the
University of South Dakota, or any other person or entity associated with the author.
This article is dedicated to the inspiration and encouragement provided by Kathleen F.
Brickey, James Carr Professor of Criminal Jurisprudence at Washington University School of
Law, and Gary Foster, Ph.D., Professor of Sociology at Eastern Illinois University.
1. Cf. Legislative History, Bankruptcy Judges, United States Trustees, and Family Farmers
Act of 1986, House Conf. Report 99-958, U.S.C.C.A.N. 5246 at 524 (stating [Chapter 12] offers
family farmers the important protection from creditors that bankruptcy provides while, at the
same time, preventing abuse of the system and ensuring that farm lenders receive a fair
repayment).
2. United States v. Grant, 971 F.2d 799, 805 (1st Cir. 1992) (noting that § 152 promotes
efficient bankruptcy administration and an equitable allocation of assets); United States v. Sha-
piro, 101 F.2d 375, 379 (7th Cir. 1939) (stating the object of bankruptcy crime legislation is to
punish those debtors who . . . did not want to surrender what property there was to the
creditors).
3. Ralph C. McCullough II, Bankruptcy Fraud: Crime Without Punishment, 96 COM. L. J.](ViewImageLocal?handle=hein.journals/sdlr43&div=23&collection=&method=preview&ext=.png&size=3)
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Bankruptcy Fraud: Crime and Punishment
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