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Failure to Disclose Lease of Residential Property in Chapter 13 Bankruptcy Proceeding Results in Prison Sentence for California Debtor

A federal judge sentenced a Chapter 13 debtor to fifteen months in prison in December 2013, following his conviction of one count of bankruptcy fraud in April. Federal prosecutors accused him of failing to disclose assets, including lease contracts on residential real property that he owned in Houston, Texas. U.S. v. Chaker, No. 4:12-cr-00168, indictment (S.D. Tex., Mar. 22, 2012). The purpose of the debtor’s failure to disclose the leases, the government claimed, was to defraud the property’s secured creditor, who had been preparing to foreclose on the property. The court, when pronouncing the sentence, reportedly noted the importance of the “reliability of those who petition for bankruptcy relief.”

The debtor, who resides in Beverly Hills, California and Las Vegas, Nevada, filed for Chapter 13 bankruptcy on March 6, 2007 in the U.S. Bankruptcy Court for the Southern District of Texas. According to the indictment, the debtor failed to disclose two details regarding his assets and liabilities. First, he had reportedly formed a limited liability company (LLC) in Nevada in 2005. He opened two business checking accounts for the company that year, and he registered it as a foreign LLC doing business in Texas in 2006. Second, the indictment stated that the debtor purchased residential real property in Houston, Texas in 2004, claiming on the loan application that he would use the property as his primary residence. He reportedly leased the property to others under two lease agreements in 2005 and 2006.

The indictment charged the debtor with one count of bankruptcy fraud under 18 U.S.C. § 157, alleging that he made “false or fraudulent representations” to the bankruptcy court and the trustee. He fraudulently failed to disclose “Income from Other Employment or Operation of Business,” it claimed, by omitting information about his interest in the LLC. He also failed to disclose the prior lease agreements on the residential property, and allegedly made a false representation to the court at a hearing on March 26, 2007, that he had not leased the property before January 2007. The indictment further alleged that the debtor sought to defraud the mortgage lender by using the automatic stay to postpone foreclosure, which the lender had scheduled for the same day the debtor filed his Chapter 13 petition.

After a five-day bench trial, a federal judge in Houston found the debtor guilty of bankruptcy fraud in early April 2013. The judge sentenced him to fifteen months in prison, followed by three years of supervised release, in December. He must also pay a $2,000 fine. The judge denied the debtor’s request for probation instead of prison, calling the offense a “serious crime” and finding jail time to be “critical.” She noted in open court that the debtor “could not tell the truth to the court.”

The bankruptcy system is intended to help people whose regular debt obligations are too much for them to pay from their available income. A debtor in a Chapter 13 bankruptcy can restructure bill payments to something more manageable, and possibly even discharge some remaining debts entirely at the conclusion of the case. Bankruptcy attorney Devin Sawdayi has guided clients through Chapter 7 and Chapter 13 bankruptcies in the Los Angeles area for over sixteen years. Contact us today online or at (310) 475-9399 for a free and confidential consultation to see how we may be of assistance to you.

More Blog Posts:

Quitclaim Deed Deemed a Fraudulent Transfer by California District Court, Los Angeles Bankruptcy Lawyer Blawg, November 26, 2013

Reality TV Couple Faces Bankruptcy Fraud Allegations Years After Unsuccessful Closure of Chapter 7 Case, Los Angeles Bankruptcy Lawyer Blawg, October 23, 2013

California Bankruptcy Court Rules on Discharge of Debt Allegedly Incurred Through Fraud, Los Angeles Bankruptcy Lawyer Blawg, September 7, 2013


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