A business that fails after a fraud is not, by that fact, a bankruptcy fraud case. A Mississippi grain elevator owner misled farmers before the operation's 2021 filing and pleaded guilty to wire fraud (US Trustee Program (USTP) report, p. 11).
Bankruptcy fraud is the dishonest deception described in what fraud is, aimed at a bankruptcy case, where the court, the trustee and the creditors are deceived.
What lay behind a Wisconsin debtor's declared $195?
A Wisconsin chapter 11 debtor who filed in 2022 listed no real estate, trusts or partnerships and one bank account holding $195. About $20 million was hidden behind dozens of sham trusts and partnerships, his papers denied a Key West home sale of over $3 million, and over $1 million in cash sat in a crawl space.
A jury convicted him of a false declaration, bankruptcy fraud and criminal contempt (same report, p. 7).
How do debtors, creditors and outsiders defraud a bankruptcy case?
Section 152 covers acts done "knowingly and fraudulently": a debtor hiding estate property, lying under oath, moving property "in contemplation of" a case or falsifying records; a creditor filing a false claim; anyone giving or taking a bribe.
Trustees, attorneys and others in the case's administration who knowingly and fraudulently take estate property commit embezzlement under 18 U.S.C. 153.
Fiscal 2025 USTP referrals alleged embezzlement 50 times and laundering 59 times, where fraud and money laundering meet.
Section 157 reaches outsiders too: a scheme to defraud plus a petition, a filing or a false representation about a case "at any time before or after the filing".
What is a petition mill?
The Justice Department's Criminal Resource Manual 879 says section 157 should reach "petition mills that are set up to defraud the landlord of a few months rent, or to a bust out scheme". Bankruptcy petition preparers "generally are limited to typing information provided by debtors into bankruptcy forms" (USTP annual report). A 2025 civil judgment imposed over $1.1 million on 12 defendants who "shunted" homeowners facing foreclosure into at least 186 abusive filings.
How far is an honest error in a bankruptcy from bankruptcy fraud?
Table 1. Five outcomes for a debtor's error or lie, from honest mistake to crime.
| Conduct | Law | Intent element | Consequence | Who acts |
|---|---|---|---|---|
| An honest error in the schedules, later corrected | None; a USTP debtor audit may find it (audit report) | Not intentional | In many instances no formal action | The US Trustee |
| A transfer within 2 years before filing | 11 U.S.C. 548(a)(1) | "Actual intent to hinder, delay, or defraud", or less than reasonably equivalent value while insolvent | The trustee can undo it (civil) | The trustee |
| A transfer or concealment within one year before filing, or a false oath | 11 U.S.C. 727(a)(2), (a)(4) | Intent to hinder, delay or defraud; a false oath made "knowingly and fraudulently" | No discharge of debts (civil) | The court, on an objection by the trustee, a creditor or the US Trustee |
| Concealment, a false oath or claim, a bribe, or a transfer in contemplation of a case | 18 U.S.C. 152 | "Knowingly and fraudulently" | A fine, up to 5 years, or both | Federal prosecutors |
| A scheme that uses a petition or a filing | 18 U.S.C. 157 | A "scheme or artifice to defraud" | A fine, up to 5 years, or both | Federal prosecutors |
USTP audits found a material misstatement in 19 of 109 audited cases in fiscal 2025, and action turns partly on "whether the material misstatement was intentional".
What can a lender or bank see before the filing?
No sign proves fraud on its own.
- Family favored, or credit taken knowing it cannot be repaid. Both are misconduct to report to the official receiver.
- A line maxed again before its payment bounces. A Florida personal banker paid card and credit line balances with worthless checks, drew again before they bounced, then filed; he pleaded guilty to bank fraud.
- A loan application that denies a bankruptcy. A Puerto Rico debtor's Paycheck Protection Program application did, a case of loan fraud; he got 18 months.
- Property leaving the jurisdiction. A bankrupt taking it out of England and Wales in the 6 months before the petition commits an offense (section 358), and removing it from Scotland can be one (2016 Act, section 218).
- Sales and companies the schedules omit. Wisconsin's Key West sale; the company interests the Puerto Rico debtor, by his plea agreement, concealed. A bank may hold both on file.
From Ufuk Gürdaş, reviewer of this entry: "In the bust out the US Trustee Program reported for fiscal 2025, a personal banker paid maxed cards and credit lines with worthless checks and maxed them again before the checks bounced; an issuer that sees a line drawn again while its payment can still come back is seeing the pattern before any petition is filed."
What is the maximum sentence for bankruptcy fraud as a federal crime?
Sections 152 and 157 each carry a fine, up to 5 years, or both, which makes them class D felonies (18 U.S.C. 3559(a)(4)). The fine can reach $250,000 for an individual, $500,000 for an organization, or twice the gross gain or loss if greater (18 U.S.C. 3571).
Knowingly falsifying a record to impede, obstruct or influence a title 11 case carries a fine, up to 20 years, or both (18 U.S.C. 1519).
Charges generally must come within five years (18 U.S.C. 3282), but concealing a debtor's assets is "a continuing offense" until discharge or its denial (18 U.S.C. 3284).
Table 2. Federal and UK bankruptcy offenses, with what each requires and its longest sentence.
| Applies in | Offense | Mental element or defense | Longest sentence |
|---|---|---|---|
| United States | Concealment, false oaths, false claims and transfers (18 U.S.C. 152); a scheme using the case (18 U.S.C. 157) | "Knowingly and fraudulently" (152); a "scheme or artifice to defraud" (157) | A fine, up to 5 years, or both, for each |
| United States | Falsified records in a title 11 case (18 U.S.C. 1519) | "Knowingly", with intent to impede, obstruct or influence | A fine, up to 20 years, or both |
| England and Wales | A bankrupt concealing property or debts, including in the 12 months before the petition (section 354) | None in the offense itself; the bankrupt has a defense by proving no intent to defraud or to conceal the state of his affairs | 7 years on indictment, a fine, or both (Schedule 10) |
| England and Wales | Gifts or transfers of property in the 5 years before the bankruptcy (section 357) | The same section 352 defense | 2 years on indictment, a fine, or both |
| England, Wales and Scotland | Company officers concealing or removing company property in the 12 months before winding up (section 206), or making false representations to win creditors' consent (section 211) | Section 206: some limbs say "fraudulently", others allow a defense of no intent to defraud or conceal; section 211: a false representation or other fraud made to obtain creditors' consent | 7 years on indictment, a fine, or both, for each |
| England, Wales and Scotland | Company officers making gifts or transfers in fraud of creditors (section 207) | A defense of "no intent to defraud the company's creditors" | 2 years on indictment, a fine, or both |
| Scotland | False statements; destroying, concealing, disposing of or removing estate, from a year before sequestration to discharge (2016 Act, section 218) | An offense unless the debtor shows they "neither knew nor had reason to believe" a statement was false, or the person who dealt with the estate shows no intent to prejudice creditors | A fine, 5 years on indictment for section 218(2), (4), (7) or (12), otherwise 2, or both (section 219) |
| Northern Ireland | A bankrupt concealing property, including in the 12 months before the petition (Article 325) | A defense of no intent to defraud or to conceal the state of his affairs (Article 323) | 7 years on indictment, a fine, or both (Schedule 7) |
How do UK insolvency offenses differ by nation?
The Insolvency Act 1986's bankruptcy offenses, sections 350 to 362, cover England and Wales only (section 440(2)(b), section 441(2)); sections 206, 207 and 211 on company officers also cover Scotland. Scotland uses its 2016 Act, Northern Ireland Articles 321 to 333 of its 1989 Order.
Only the Secretary of State or the DPP, or someone with the DPP's consent, may prosecute in England and Wales (section 350(5)); in Northern Ireland, the Department or the DPP for Northern Ireland, likewise (Article 321(5)).
Debts run up with "no reasonable expectation of being able to pay" can bring a bankruptcy restrictions order (Schedule 4A); England and Wales had 93 bankruptcy and debt relief restrictions in 2025 to 2026, 55 over COVID scheme abuse allegations, subject to revision (Insolvency Service).
How many bankruptcy fraud referrals lead to charges, and where do reports go?
The US Trustee Program, which covers every federal judicial district except those in Alabama and North Carolina, made 2,263 criminal referrals in fiscal 2025. Allegations overlap: tax fraud in 70.8 percent, mostly improper filing status and misused exemptions; false oaths or statements in 20.5. By 1 June 2026, 15 had led to charges, 1,248 had been declined and 993 were still under review or investigation; a reportable action generally takes over two years, the report says.
Under 18 U.S.C. 3057 a judge, receiver or trustee with "reasonable grounds" "shall report" a suspected bankruptcy crime to the US Attorney. Anyone can email the USTP (USTP.Bankruptcy.Fraud@usdoj.gov) a written summary naming the case and its number (USTP).
Fraud victims who live in England, Wales or Northern Ireland report to Report Fraud (0300 123 2040), those in Scotland to Police Scotland on 101 (NCSC).
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The Wisconsin case moved to chapter 7 with the discharge waived; after convictions including criminal contempt, he got 84 months and a $500,000 fine in June 2025.
Related terms
- Credit card fraud. Unauthorized use of card details.
- Fraud vs money laundering. Taking money versus hiding it.
- Loan fraud. Deceiving a lender to get a loan.
- Tax fraud. Deliberately underpaying tax.
- Financial fraud. Deception aimed at money or credit.
- Synthetic identity fraud. Credit built on a part invented identity.
