Bankruptcy fraud can become very complex and may involve the IRS or FBI. The penalty may involve many years of incarceration when coupled with other criminal charges. Other cases are relatively simple like a recent case in Pennsylvania:

A husband and wife were each sentenced to fifteen days in prison by U.S. Magistrate Judge J. Andrew Smyser in the Middle District of Pennsylvania after finding contempt of court for untruthful conduct in their joint bankruptcy case.

According to a press release issued by the U.S. Attorney’s Office, Tammy Beecher and Wyatt Beecher filed a chapter 7 bankruptcy petition in May 2007. The filing stated that the Tammy Beecher had no income and that neither debtor operated a business within the previous six years. In fact, the Beechers owned a family business, “Fun 4 Kids Entertainment.” Only after the Beecher’s were presented with a coupon for $5 off any party, and reminded by the chapter 7 trustee that they signed the bankruptcy petition under penalty of perjury, did the Beecher’s admit that they owned and operated the business.

Bankruptcy fraud can be reported by ex-spouses, banks, and even your neighbors. The Executive Office of the United States Trustees (EOUST) recently launched an internet site that will allow the public to report suspected instances of bankruptcy fraud to the EOUST at http://www.usdoj.gov/ust/eo/fraud/index.htm.

The moral here is: tell your bankruptcv attorney everything. Your attorney can work with you to protect your assets and avoid criminal charges, but only if you tell all. The information you share with your attorney is shielded by attorney-client privilege, a powerful and time-honored protection. While your attorney cannot counsel or assist you in an illegal act, there are many legal options available in every case. If you are in over your head, speak with an attorney and understand your legal options.

Some people do not think in terms of needs and wants when it comes to considering bankruptcy or even spending and living on a budget. However, this is a major part of what Chapter 13 bankruptcy helps to accomplish.  In the bankruptcy world, a person’s expenses are looked at in two categories – necessary and non-necessary for reorganization purposes.  A necessary expense would be defined as food, clothing, and shelter.  Non-necessary expenses would be things such as cable, internet, gym memberships, etc.  People must begin to put their expenses in perspective and make tough decisions like whether to keep their home or surrender it or whether they can afford to keep their children in a private school which clearly is a non-necessary expense. 

For illustration purposes, let’s look at expenses for food, clothing and other items based on the IRS National Standards for Allowable Living Expenses in bankruptcy cases filed on or after March 15, 2009.  Per month, a household of two people can spend $537.00 for food, $66.00 for housekeeping supplies, $162.00 for clothing and services, $59.00 for personal care products & services and $197.00 for miscellaneous expenses.  These items become budgeted expenses in the sense that you are now limited to what you are allowed to spend on certain things.  Reality sets in quickly and it sometimes stirs up anger or bitterness in Chapter 13 cases when someone must be told that they have to remove their children from private school or give up the RV used for vacation or the boat used for recreation.   Remember, usually these issues only come up when someone files a Chapter 13 seeking to pay unsecured creditors less than 100%.

Anyone who files a bankruptcy is subject to these expense limits and must follow the confines of the law and the applicable rules if they want the benefits that bankruptcy offers. In other words, you have to take the good with the bad.   Because we must follow the IRS expense guidelines, a person can be forced to give up property in bankruptcy and/or reduce their spending in they want the benefits of a Chapter 13 reorganization.  So keep this in mind when you elect to file a Chapter 13 and attempt to pay your unsecured creditors less than 100%.

It depends. If you were an active member of the corporation and involved in the day to day operations including the paying of bills, then you probably will be deemed to be a “responsible party” by the IRS. For the Kentucky  withholding tax obligations, you may be deemed personally “responsible” simply by being an officer of the  orporation even if you were not an active party in the bookkeeping operations of the business.

As a responsible party, you may be personally liable for any unpaid trust fund obligations of the corporation. What is a trust fund obligation? It is that portion of the tax liability that was withheld from an employee’s paycheck and not turned over to the government. The matching FICA obligation of the company is not a trust fund obligation and will be deemed uncollectible by the IRS if the company goes out of business. Also, all sales taxes collected from a customer are deemed to be trust fund taxes.

If your business does have to close down, then you may need to file an individual Chapter 7 bankruptcy in order to get relief from any personal guarantees that you may have obligated yourself to in order to get the business up and running. However, you cannot discharge in bankruptcy any trust fund tax obligations that you may have. You will have to work out a payment plan after the bankruptcy is over with the IRS and the state or you may consider filing a Chapter 13 in order to pay back the tax liabilities over five years without the accrual of interest or penalties.