An accountant was recently convicted of committing fraud by fraudulently concealing $700,000 just before filing for bankruptcy and failing to report the funds to the bankruptcy trustee. Appleton debtors should be aware that bankruptcy exemptions allow debtors to keep some of their cash in their possession without committing fraud.
The accountant now faces up to five years in federal prison. According to the evidence, the accountant had more than $700,000 in his possession the day before he filed bankruptcy. He attempted to hide the money by opening a joint bank account under his mother’s social security number and depositing the money in that account. Bank records showed that the accountant used the hidden funds to pay off certain creditors, including a mortgage lender and attorneys, as well as to purchase a luxury vehicle. He also withdrew approximately $150,000 in cash.
By law, bankruptcy debts are not discharged or otherwise wiped out if there is any evidence of fraud or that the debtor concealed assets. When a debtor transfers property in order to hide assets, this is called a fraudulent transfer. Generally, the bankruptcy exemptions will protect such assets as household furnishings, cash, vehicles, homestead, wages, clothes and tools of trade up to a certain amount, which allows debtors to keep their basic necessities for everyday living.
Assets that are not covered by a bankruptcy exemption or otherwise go over the exempted amount are generally liquidated and used to pay some of the debtor’s creditors. This is generally how creditors are paid when a debtor has some available assets. However, if a debtor selectively pays some creditors immediately before or during the bankruptcy outside of the normal course of business, those payments can be seen as an illegal preference and recouped by the trustee. Many debtors have few or no assets beyond the bankruptcy exemptions. Cash assets that go over the allotted exemption for that category can still be exempted if the debtor did not use all of the allotted homestead exemption to save the home equity. The unused homestead exemption can apply to exempt any cash on hand up to the amount of the unused portion. Accordingly, there are means to keep cash up to a certain amount without committing fraud.
Bankruptcy proceedings may enable Appleton debtors to keep as much money in their pockets as possible. Filing for bankruptcy also may relieve debtors from creditor harassment.
Source: The Daily Commercial, “Local accountant wants new trial,” April 1, 2013
