Bankruptcy fraud is a federal crime with serious consequences. According to the Internal Revenue Service, 10 percent of all bankruptcy filings have elements of bankruptcy fraud. Whether or not an attorney has or can report your fraud to the authorities depends on a number of factors; but, generally, yes, attorneys can report their clients' bankruptcy fraud.
Most bankruptcy fraud cases revolve around illegal actions by the debtors themselves. Specifically, bankruptcy fraud occurs when debtors filing for bankruptcy hide money or property during bankruptcy, provide false statements on official bankruptcy documentation or file for bankruptcy multiple times within the same time frame. However, trustee fraud can also happen in bankruptcy.
Individuals who are caught committing bankruptcy fraud face imprisonment for up to five years and a fine of up to $250,000.
The attorney-client privilege requires attorneys hold in confidence anything a client tells them in the course of representation, even if it involves a crime, with a few exceptions. An attorney can divulge a client's confidences when doing so would prevent a criminal act that would otherwise result in substantial harm or death, to defend himself in a malpractice or criminal lawsuit, to collect fees owed from a client and when he is compelled to do so by the court.
An attorney can also divulge a client's confidences when his services are being used to further crime or fraud. This exception proves tricky with bankruptcy fraud but in most cases, an attorney would have to turn in a client who is using his services to help file a fraudulent bankruptcy.
The attorney-client privilege only applies when an attorney is representing you. If you confess your secrets to an attorney who is not representing you, he is under no obligation to keep your secret. Similarly, if an attorney discovers your crime, he is not required to keep quiet. With respect to crime, it is actually quite the opposite. Attorneys are under a moral obligation known as a professional responsibility to report crimes they are aware of. So if you tell someone who is an attorney but is not representing you about the fraud you've committed or if an attorney finds out you have committed fraud, he is under an obligation to report it to the authorities.
- Photo Credit Thinkstock/Comstock/Getty Images