Bankruptcy Fraud: Examples and Defenses

Mamajuana Cafe location in the upper West Side. (James Keivom/Daily News) Photo Source: Mamajuana Cafe location in the upper West Side. (James Keivom/Daily News)

In New Jersey, a restaurant owner pleaded guilty to bankruptcy fraud that dates back to when he filed in February 2017. His name is Victor Osario and he is 53 years old from Cresskill in Bergen County. When filing for bankruptcy three years ago, he did not mention his ownership interests in two restaurants. According to acting U.S. Attorney Rachael Honig, these restaurants were in Secaucus and New York City. He also failed to mention a bank account in the Dominican Republic. Osario pleaded guilty via videoconference to one count of bankruptcy fraud in the U.S. District Court in New Jersey. He is going to be sentenced on June 28 and is facing up to five years in prison and a $250,000 fine. According to, Osario’s attorney, Don Savatta of Essex County, said that Osario pleaded guilty “to put the charge behind him and move on with his life.”

Sometimes bankruptcy fraud can occur before you file for bankruptcy. People will sometimes use bankruptcy to try and get rid of a previous financial mistake. Some examples of this would be writing a bad check on purpose or buying big luxury items right before you file for bankruptcy. If it is found that you did this, the court can make it to where that debt will not be discharged, which means that you will still have to pay it once the case ends.

Fraud that happens during your case and is found to have been done knowingly will not work well for your case. According to, examples of this include “failing to list an asset on the appropriate bankruptcy schedule to prevent it from being sold for the benefit of creditors, concealing a property transfer that occurred before the bankruptcy (for example, failing to disclose gifting a car to a friend), providing a false document to the bankruptcy court or trustee, destroying or withholding documents, knowingly making a false statement in the bankruptcy paperwork or to the bankruptcy trustee at the 341 meeting of creditors, or paying someone to help hide property from the court.”

Bankruptcy fraud has to be proven to be intentional, and proving someone’s intentions is difficult. Therefore, the defense will try to show doubt in the prosecution’s case. Some possible defenses are mistake, legitimate purpose, the statute of limitations, and withdrawal or renunciation. With a mistake, the defendant might claim that they did not disclose an asset on their bankruptcy petition on accident. For example, the debtor might have provided the information to the person preparing the petition, but that asset got inadvertently left out, and the debtor did not notice when signing the documents. Legitimate purpose is when it can be proven that something was done for a lawful purpose. For example, the defendant could have sold an asset for half its worth in order to receive a tax deduction. For the statute of limitations defense, the defendant can claim that the government can no longer prosecute them because the statute of limitations ran out. The statute of limitations for bankruptcy fraud is five years from when the offense happened. When there is a concealment of assets involved, the statute of limitations is five years from the day of discharge or denial of discharge. Finally, withdrawal or renunciation occurs when an error was made but corrected as soon as it was discovered. Even an intentional omission might be renounced in certain circumstances.

The penalties for bankruptcy fraud can include serious jail time and steep fines, as evidenced in the Osario case discussed at the beginning of this article. Debtors should take care to conscientiously review all documents before signing them or submitting them to the court.

Catherine Kimble
Catherine Kimble
Catherine graduated from the University of Louisiana at Lafayette with a Bachelor's Degree in Political Science with a minor in English. In her spare time, she enjoys reading, watching Netflix, and hanging out with friends.
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