Fraud and its effect upon exemptions assume many shapes and forms. Frequently, the alleged fraudulent conduct occurred before the initiation of the case, such as false statements made to obtain credit, acquisition of property by questionable methods, business misleadingly done under an assumed name or the spiriting away of assets beyond hope of later recovery by the trustee. Sometimes the objectionable act arises in the bankruptcy proceeding itself, such as falsely swearing under oath on examination as to assets, placing erroneous value on articles claimed exempt in the schedules or failing to make a full and fair disclosure of all assets. In other instances, the problem is whether an exemption will be allowed out of property that has been transferred or concealed and which has been recovered by the trustee. Often a combination of these various acts occurs, as when a merchant makes false statements to obtain credit, then fraudulently transfers the goods received to a third person, or when property is fraudulently acquired and concealment is attempted but discovered.

 

Moreover, the statutes governing exemptions frequently limit exemptions according to the type of property or its value. The statutory recognition of exemptions is of little consolation to debtors whose property does not fall neatly into those categories. Even debtors who have property that falls within the exemption categories may also own significant property that does not fall into those categories. In either event, the debtor may be interested in converting property that does not meet the statutory standards for ex-emption into property that does meet those standards. At some point, the thin line between legitimate exemption planning and fraudulent conveyance may be crossed.

 

The Expert Commentary from which this material was excerpted was adapted from material appearing in Collier on Bankruptcy (Matthew Bender). Subscribers to lexis.com may purchase the entire Expert Commentary.