Melissa Stamp, of Stamp Farms, Decatur MI, had been Miss Southwest Michigan and Michigan Apple Queen before she was convicted of bankruptcy fraud and sentenced to 20 months in a federal penitentiary last year.
She and her husband, Michael Stamp, owned two businesses, Stamp Farms and Northstar Grain, LLC. Both businesses filed for bankruptcy in 2012 after they had gotten more than $65 million in financing from Wells Fargo Bank.
Melissa pled guilty and admitted to giving some of the money to her brother, and some to her father to hide the cash in a safe in order to conceal it from bankruptcy court.
This is just one of the four forms bankruptcy fraud takes.
The Four Basic Forms of Bankruptcy Fraud
- Debtors conceal assets to avoid having to forfeit them.
- Individuals intentionally file false or incomplete forms.
- Individuals file multiple times using false information or real information in several states.
- Individuals bribe a court-appointed trustee.
In addition, those convicted of bankruptcy fraud have commonly also have committed another form of fraud such as identity theft, mortgage fraud or money laundering.
Concealment of Assets
The great majority of bankruptcy fraud – almost 70% – is concealment of assets. If a creditor, such as Wells Fargo Bank, can only liquidate assets listed by the debtor than the debtor assumes he or she could get away with keeping some of the assets if he or she hides them.
In order to hide assets, debtors have transferred assets to friends, relatives or an associate to keep assets from being found. Bankruptcy can be a safe haven for companies and individuals in need but when the system is abused, it raises both the risk and the cost associated with lending. That cost ends up being passed to future users of the bankruptcy law.
One type of bankruptcy fraud scheme which is actually perpetrated by a third party is called a “petition mill.” Petition mills promise to keep tenants who are having a hard time paying rent from eviction. They make themselves look like a consulting service, but what they actually do is file the tenant for bankruptcy, unbeknownst to the tenant, and drags out the case, charging large fees, emptying the tenant’s bank account, and ruining his or her credit score.
This type of bankruptcy fraud can include attempting to file in multiple states under the same name or using aliases and fake information – or some combination. This keeps the court system from being able to process bankruptcy filing and liquidating assets. Sometimes debtors try to file multiple times in order to conceal assets.
Bankruptcy Fraud: Charges and Penalties
Bankruptcy fraud a federal crime in the U.S. Prosecutors can charge for suspected bankruptcy under 18 U.S.C. § 151.
The penalty can carry a sentence of up to five years in prison or a fine of up to $250,000 or both for each count of bankruptcy fraud. Prosecutors have to show the defendant knowingly and fraudulently made a misrepresentation of material fact (assets, identity, etc.)