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BANKRUPTCY NEWSLETTER
Bankruptcy July 31, 2014
 
Bankruptcy
Employment
 

Employee Benefits When Employers Declare Bankruptcy

Generally, a business that is facing serious financial difficulties might seek to file for bankruptcy under either Chapter 7 or ...(more)

 

Ordering the Appointment of a Trustee for a Chapter 11 Bankruptcy Case

In order to facilitate effective business reorganizations, Chapter 11 bankruptcy is designed to grant a failing business the opportunity to ...(more)

 

The LaSalle Decision and Limiting the Application of the New Value Exception

In the 1999 case, Bank of America National Trust and Savings Association (LaSalle), the U.S. Supreme Court issued a landmark ...(more)

 

Continuing Utility Services After Bankruptcy

Filing for bankruptcy automatically triggers the "automatic stay," which generally prevents creditors from pursuing claims against debtors to collect on ...(more)

 

Bankruptcy Law In The News

Former NFL Quarterback Vince Young Files For Bankruptcy

Central California Diocese Files for Bankruptcy

Duke Energy settles suit over Crescent bankruptcy

Detroit water department mediation to continue next week

Detroit bankruptcy plan threatens survivor benefits of families of fallen cops, firefighters

Fraudulent Involuntary Bankruptcy Prohibited by the Involuntary Bankruptcy Improvement Act


Although seldom used, a creditor can force an individual into Chapter 7 or Chapter 11 bankruptcy by filing an involuntary bankruptcy petition. For creditors, such a collection tool can prove effective in protecting debtor assets from dissemination and liquidation.

However, tax protestors and others have abused this collection tool by improperly using it against public officials and non-bankrupt individuals. Even though bankruptcy courts ultimately may dismiss these claims once fraudulency has been established, the individuals will still experience the ramifications of filing bankruptcy. As such, in early 2005, the Congress passed the Involuntary Bankruptcy Improvement Act as a subpart of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

Objectives of Involuntary Bankruptcy Improvement Act
The objectives of the Involuntary Bankruptcy Improvement Act are twofold:
  1. To expunge all records of fraudulently filed bankruptcy petitions if the debtor is an individual
  2. To prohibit all credit agencies from issuing consumer reports regarding fraudulently filed bankruptcy petitions if the debtor is an individual and a bankruptcy court has dismissed the case
Provisions of the Act
The bankruptcy code provides that the court shall "seal all the records" relating to an involuntary petition against an individual that is dismissed by the court and "is false or contains any materially false, fictitious, or fraudulent statement." The court may also enter an order prohibiting all consumer reporting agencies from making any consumer report that contains any information relating to such a petition or to the case commenced by the filing of such a petition. Furthermore, the act gives the debtor, in certain circumstances, the right to file a motion to expunge any records relating to a petition filed under this section. Finally, the act specifically adds fraudulent involuntary bankruptcy petitions to Section 157 of Title 18, criminalizing bankruptcy fraud. Section 157 provides that a person found guilty of bankruptcy fraud may be fined or imprisoned for a term of not more than five years.

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