Title 18 U.S.C. § 157 prohibits devising or intending to devise a scheme or artifice to defraud and, for purposes of executing or concealing the scheme either (1) filing a bankruptcy petition; (2) filing a document in a bankruptcy proceeding; or (3) making a false statement, claim, or promise (a) in relationship to a bankruptcy proceeding either before or after the filing of the petition; or (b) in relation to a proceeding falsely asserted to be pending under the Bankruptcy Code. This section, which is patterned after the mail and wire fraud statutes, was added by the Bankruptcy Reform Act of 1994. This statute applies to any bankruptcy fraud scheme that continues or begins after October 22, 1994--the effective date of the Bankruptcy Reform Act of 1994.
Section 157 provides:
A person who, having devised or intending to devise a scheme or artifice to defraud and for the purpose of executing or concealing such a scheme or artifice or attempting to do so--
- files a petition under title 11;
- files a document in a proceeding under title 11; or
- makes a false or fraudulent representation, claim, or promise concerning or in relation to a proceeding under title 11, at any time before or after the filing of the petition, or in relation to a proceeding falsely asserted to be pending under such title, shall be fined under this title, imprisoned not more than 5 years, or both.
Any defendant who undertakes a fraud scheme against anyone and then carries out or conceals the scheme by filing for bankruptcy or by filing any documents in the bankruptcy, violates this statute. This section is also applicable to the defendant who tries to defraud someone by falsely asserting that a case is in bankruptcy in order to forestall the victim's actions. The essence of this statute is the existence of a fraud scheme or attempted fraud scheme and any use of the bankruptcy system to carry out the scheme. For example, this statute should be applicable to petition mills that are set up to defraud the landlord of a few months rent, or to a bust out scheme. Likewise, a defendant who is actively defrauding anyone violates this statute by filing bankruptcy to delay or conceal the fraud.Case law from the wire, bank, and mail fraud statutes, 18 U.S.C. §§ 1341, 1343, and 1344, which have similar language, will be very useful in determining the scope of this statute.
[cited in JM 9-41.001]