Steven A. Simons, Attorney at Law
9010 Corbin Ave., Suite 17B, Northridge, CA 91324| TEL 818-368-9642, 818-788-LAW1 | FAX 818-975-5032

Consumer Law Newsletter

House Passes the Involuntary Bankruptcy Improvement Act to Combat Fraudulent

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.

  • Funeral Homes, the FTC and the Funeral Rule
    In response to consumer criticism of the funeral industry, the Federal Trade Commission (FTC) drafted the “Funeral Rule” (the Rule) which became effective in 1984 and was revised in 1994. The Rule applies to... Read more.
  • Recovery for Injuries Caused by Design Defects
    “Product liability” is the area of the law enabling recovery for those injured by defective products. Some commentators suggest it reflects a balance between the benefits that society as a whole reaps from technological... Read more.
  • Taking Unsafe Toys Away From Children
    The U.S. Consumer Product Safety Commission (CPSC) regulates the distribution of 15,000 types of consumer products that pose an unreasonable risk of injury or death to the public. As young children are particularly susceptible to... Read more.
  • Land Sale Scams and ILSFDA
    Prompted by an increase in land sale scams in the 1960’s, Congress passed the Interstate Land Sales Full Disclosure Act (ILSFDA) in 1968. Administered by the Federal Department of Housing and Urban Development (HUD), the ILSFDA... Read more.
Consumer Law News Links
Share This Page: