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Jenner & Block Partner Ronald R. Peterson recently outlined the elements of criminal activity in bankruptcy proceedings under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 as part of a new American Bar Association book, Attorney Liability in Bankruptcy.
According to Mr. Peterson, an attorney’s criminal liability for a bankruptcy crime begins with 18 U.S.C. § 152, which contains what he calls the “seven deadly sins of bankruptcy,” including concealment of estate property, false oaths and certifications, false claims, improper receipt of estate property, bribery, destruction or falsification of records, and withholding information from a trustee.
Mr. Peterson added that the most critical portion of this statute is that the acts must be committed “knowingly and fraudulently,” but he explained that missteps can happen in the most common of circumstances.
"Bankruptcy professionals cannot bury their heads in the sand, or divorce themselves from their client’s conduct, and sail blissfully through bankruptcy,” wrote Mr. Peterson. “They must observe the new responsibilities under the Act scrupulously, and not assume that any penalty will be a civil one.”
For instance, attorneys should be especially vigilant when engaging in activities related to debtor’s schedules, statement of affairs and reaffirmation agreements because these are two areas where criminal liability may increase under the new bankruptcy Act, said Mr. Peterson. The Act states that bankruptcy attorneys should not submit a client’s schedule or statement of affairs to the court unless they have engaged in a “reasonable inquiry to verify that the information in the documents is well grounded in fact and warranted by existing law,” he explained.
The Act also sets out detailed standards for reaffirmation agreements – where the debtor promises to repay a debt that would otherwise be discharged after the bankruptcy – to ensure that the agreement will not impose an undue hardship on the debtor.
Please click here to view the chapter.
For more information about the book, please click here to view the ABA website.