How Does A Bankruptcy Trustee Investigate Suspected Fraud In A Filing?


A major part of the bankruptcy trustee's responsibilities is ensuring that there is no fraud being committed by the person filing. If you are that person, it is important that you understand the trustee's process to investigating your claim and what could possibly happen if fraud is suspected. Here are two methods the trustee could use and possible actions if fraud is identified.

Bankruptcy Rule 2004 Examination

The Bankruptcy Rule 2004 examination gives the trustee the right to get testimony and documentation from any source to determine if there is fraud. The rule allows your trustee to investigate your conduct, financial condition, and any matter that might impact how your bankruptcy estate is managed. 

There is very little you can do about this rule. It gives the trustee a broad range of power when searching for fraud. The trustee may or may not notify you that he or she is investigating your financial activity. 

Temporary Injunctions

If the trustee believes that you are transferring or depleting assets that should be considered in your bankruptcy filing, he or she can ask the court for a temporary injunction. The trustee must show the court proof and submit an affidavit stating he or she believes you are deliberately depleting or transferring your debts.

The injunction would prohibit you from doing anything with your assets. The court does not need to notify you in advance that an injunction has been requested. An order to determine how long the injunction will be in effect is usually held within days of the issuance of the temporary injunction.

Possible Actions

If the trustee is able to prove that fraud did occur, it is usually considered a criminal action. The trustee will refer the case to the Office of the U.S. Trustee. This office will pass the case to the U.S. Attorney for investigation. There is a possibility that your case could be referred to another agency including the Federal Bureau of Investigation.

In the event that a case for fraud is made, you could face prison, fines, and a dismissal of your bankruptcy case. Depending on the situation, you could be penalized for making false statements, embezzlement, concealing assets, or any other fraudulent-related crimes. 

To avoid the possibility of facing fraudulent charges, it is best to review all of your finances with a bankruptcy attorney like Thornton, Coy & Huss, P.L.L.C.. It is important that you talk over any financial moves you plan to make before doing so to avoid unintentionally making a costly mistake.

About Me

Understanding the Law Can Help Keep You out of Trouble

Like most adults, I always thought I had a good grasp of the basic laws of the country and those of my state. One day I learned that while, of course, I knew the major ones, I didn't even quite understand my local traffic laws. I always obeyed the law, but due to just not knowing about one local traffic law, I ended up facing a huge traffic fine and getting quite a few "points" on my driver's license due to my legal ignorance. I have since became determined to study up on the law, so I don't make the same mistake twice. I have learned a lot already, and I thought I would help others avoid ending up in the situation I did by sharing what I have learned on a blog. I hope I can help you stay out of legal trouble!

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