What Happens If the Trustee Suspects Fraud?

An important part of the bankruptcy trustee’s job is to investigate fraud. If the trustee suspects that someone may be committing fraud in a bankruptcy case, he or she can file a lawsuit against that individual. But, what happens then?

Bankruptcy Rule 2004 Examination

If the trustee suspects fraud but does not have enough evidence to file a lawsuit, a Rule 2004 examination may be conducted. A Rule 2004 examination is similar to a deposition; however, some different rules apply, such as the scope of questions that may be asked. The trustee can also request document production from the filer anyone that might relate to the case. The Bankruptcy Rule 2004 authorizes the trustee to examine:

• The act, conduct, property, liabilities and finances of the debtor
• Any matter that might affect the administration of the bankruptcy estate
• Any matter that might affect the debtor’s right to a discharge

Adversary Proceeding

Once the trustee collects enough evidence to file a lawsuit, he or she can do so in the bankruptcy court. This type of lawsuit is known as an adversary proceeding. An adversary proceeding can be filed by a trustee to:

• recover property and set aside transfers;
• obtain turnover of undisclosed property;
• revoke the discharge of a bankruptcy debtor;
• determine the validity and extent of liens;
• recover money that was obtained through fraud.

Other types of Bankruptcy Fraud Cases:

• Temporary injunctions. If the trustee has sufficient evidence of fraud and believes that damage would be done should he hold off until the conclusion of an adversary proceeding, a temporary injunction may be sought out. This injunction will prohibit the disputed assets from being transferred and allows the trustee to take possession.

• Bankruptcy Crimes. Bankruptcy crimes such as filing false claims, concealing assets, bribery, and embezzlement are federal crimes prosecuted in the Federal Courts. In this case, the trustee makes a criminal referral to the Office of the United States Trustee who then passes the case along to federal agencies for investigation. Bankruptcy crimes are punishable by fines and/or prison time.

If you are planning to file for bankruptcy, it is in your best interest to seek out the expertise of a West Palm Beach Bankruptcy attorney. The team at Kelley Kaplan & Eller is always available to help and will ensure that your case goes smoothly. Call today to learn more.