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One of the most common misconceptions concerning bankruptcy fraud is that amending a petition or schedule to supply missing information (or to correct inaccuracy) in an original filing will protect the debtor from a bankruptcy criminal charge. In the classic context, a debtor omits an asset from the schedules. At the meeting of creditors, the trustee discovers the and the debtor is asked to amend the appropriate schedule, which he does, correcting the original omission or false statement. Does the amendment mean the debtor cannot properly be charged (and convicted) with a concealment or false statement?

The answer is no.

Amendments are liberally allowed)), subsequent remedial measures (things done to correct the original omission) do not automatically immunize a debtor from criminal prosecution or, for that matter, from a judgment denying the debtor’s discharge. The corrective action may, however, be admissible to show the debtor acted in good faith. The debtor’s good faith would negate the element of fraudulent intent in a criminal prosecution or civil proceeding to deny the debtor a discharge. Applying the established rule, the Tenth Circuit easily rejected a debtor’s argument that amending his schedules to correct a false social security number (SSN) operated as a defense to a false declaration charge (18 U.S.C. ß 152(3)) in United States v. Beach, Nos. 05-3362 – 06-3053 (10th Cir. Apr. 9, 2007). A debtor filed a pro se chapter 7 bankruptcy petition in which his SSN was reversed, except for one number. The bankruptcy court clerk published a Notice of Commencement of Case containing the incorrect SSN and mailed it to all creditors. Soon afterwards, the clerk noticed the inaccuracy and alerted the debtor to the deficiency. Within a week of the original filing the debtor filed an amended petition with his correct SSN. The debtor was indicted and convicted for making a false declaration in a bankruptcy case. An appeal followed in which the debtor argued there was insufficient evidence to convict him because the amendment negated the element of fraudulent intent. The circuit court rejected the argument because despite the amended filing, there was substantial other evidence that the debtor acted with fraudulent intent. The debtor had filed a previous petition omitting his SSN altogether; the debtor’s wife’s SSN was also incorrect on their joint petition (she pleaded guilty); an FBI special agent testified that the manner in which the numbers were transposed indicated that entry of the incorrect numbers was intentional; the debtor acknowledged discussing the incorrect numbers with his wife; and the debtor admitted that he knew the numbers were incorrect. As a practical and legal matter, a debtor must have corrected the original inaccuracy before it was discovered in order persuasively to show that the corrective measure evinced a lack of fraudulent intent. See, e.g., Sholdra v. Chilmark Financial LLP (In re Sholdra), 249 F.3d 380 (5th Cir. 2001) (debtor’s amendment to schedule to include previously omitted asset after nondisclosure was discovered was not a defense to objection to discharge)

So what happens if a debtor makes a false statement in connection with a bankruptcy case?

B&W Motor Cars owner sentenced in New Jersey for lying about closed bank accounts

Moty Rosenkrantz a/k/a Michael Rosenkrantz, the owner of B&W Motor Cars, pled guilty to structuring banking transactions to avoid reporting requirements and making a false oath in a bankruptcy case. The defendant admitted in his guilty plea that in July 2003 he filed a bankruptcy petition in which he falsely reported that no financial accounts in his name had been closed in the preceding year when in fact he had closed at least seven bank accounts in March 2003. Rosenkrantz was sentenced in the District of New Jersey to 48 months in prison, three years of supervised release and a fine of $10,000.

So if you find yourself with a bankruptcy problem involving missing or omitted information, be clear, it si a criminal problem. You need an attorney with both criminal and bankruptcy experience to help you.