BANKRUPTCY CRIMES
Bankruptcy crimes exist to protect the goals of
civil bankruptcy, which is a fresh start for consumers, the reorganization of
businesses, and the equitable distribution of a debtor's assets amongst
creditors. Almost every bankruptcy crime is preceded by a prior civil
bankruptcy case. Consequently, courts have had to organize the coordination of
several cases arising out of one bankruptcy.
Prevention and Redress of Abuses of the Bankruptcy System
The orientation of the Bankruptcy Code toward
debtors' rehabilitation and equitable distribution to creditors relies heavily
upon the participants' honesty. To protect the civil system, bankruptcy crimes
are not concerned with individual loss or even whether certain acts caused
anyone particularized harm. Instead, the statutes establishing the federal
bankruptcy crimes seek to prevent and redress abuses of the bankruptcy system.
Thus, most of the crimes do not require that the acts proscribed be material,
that the defendant benefit or that any creditor be injured. Also, there is no
civil private right of action bestowed upon victims of bankruptcy crimes. The
federal criminal statutes do not seek to regulate the debtor-creditor
relationship; instead, they set basic rules for participation in the civil
bankruptcy process.
Ambiguity in a Criminal Statute
There is a special rule in criminal cases when there is genuine
ambiguity in the criminal statute. Ambiguity concerning the reach of a criminal
statute should be resolved by reading the statute narrowly in order to encourage
Congress to speak clearly, thus giving the populace fair warning of the line
between criminal and lawful activity, and in order to have the Legislature, not
the courts, define criminal activity.
Collateral Consequences of a Conviction of a Bankruptcy Crime
A conviction of a bankruptcy crime has collateral
consequences. Beyond the punishment given, the presence of a felony conviction
has further effects. Initially, the conviction will be res judicata as to the
perpetration of the type of fraud necessary to bar a discharge. If the court
also imposes a fine, the amount of that fine is a lien on all of the
defendant's property and rights to property. The fine itself may not be
discharged, nor may the lien securing repayment of the fine be avoided in a
bankruptcy case.
The criminal conviction will also have collateral
estoppels effect in related civil litigation, even if the conviction is on
appeal. Also, entry of a guilty plea or a conviction can result in a loss of
employment opportunities because most bankruptcy crimes involve a form of
fraud. A convicted felon may not hold certain positions in regulated
industries, such as securities, banking, or insurance.