How the Bankruptcy Trustee Investigates Fraud Allegations

The federal bankruptcy laws are designed to give you a second chance. They’re not a sign of failure—some pretty famous and successful people have filed for bankruptcy—some more than once. But the laws are taken seriously. If the bankruptcy trustee has any suspicion that your claim is fraudulent or that you have misrepresented your true financial condition, there are specific steps the trustee can take to determine if there’s any merit to those concerns.

A Bankruptcy Rule 2004 Examination

Often, the first step the trustee will take is to request that a debtor submit to a Rule 2004 examination. Under this provision, a debtor may be required to testify and to produce documents.

In addition, the trustee may solicit testimony and documents from other parties to discern whether there has been fraud. Specifically, the rule allows a trustee to investigate:

  • Any matter that may affect the administration of a bankruptcy estate
  • Any matter related to or affecting a debtor’s right to discharge a debt
  • Any acts, conduct, property, liabilities or financial condition of a debtor

Adversary Proceedings

An adversary proceeding is essentially a lawsuit filed in the bankruptcy court. Typically, the adversary proceeding is brought against a debtor, but the trustee has the authority to bring such an action against anyone.

Temporary Injunctions

If the trustee obtains evidence that assets are being wrongfully depleted or other fraud is being perpetrated, the trustee may ask the court for an injunction. The injunction is an order of the court prohibiting a person from engaging in specific actions, such as the transfer of property.

Criminal Proceedings

Fraud is both a civil and a criminal offense. If there’s evidence that you have engaged in bankruptcy fraud, the U.S. Attorney’s Office can prosecute you for violation of federal law.

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we provide a free initial consultation to every client. To set up a meeting, call Neuner & Ventura at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

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