Singer Toni Braxton Accused of Bankruptcy Fraud

It may seem that celebrities have more than enough money to get by, but even movie stars and famous singers file for consumer bankruptcy; and sometimes they even get in trouble with the law in the process. Grammy Award-winning singer Toni Braxton is facing accusations of defrauding the bankruptcy court by transferring over $53,000 to her estranged husband to avoid paying bankruptcy creditors.

Braxton has filed bankruptcy on two occasions in the past 15 years, according to a TMZ report. Sadly, many of her financial troubles stem from recent health problems, among them, long-term autoimmune disorder, Lupus, and an associated heart condition. One report estimates Braxton’s debt was between $10 and 50 million upon first filing for bankruptcy.

The money Braxton is being accused of fraudulently transferring was reportedly set to be paid to her creditors. The bankruptcy trustee overseeing her case came forward with this information and is now pursuing legal action against the singer.

Understanding Bankruptcy Fraud

With an increase in consumer bankruptcies in recent years comes an increase in fraud associated with filing. Bankruptcy fraud is considered a federal crime and according to the US Department of Justice, it will happen in approximately ten percent of cases.

In order to be convicted of bankruptcy fraud, a person must knowingly and fraudulently commit certain prohibited acts in connection with their bankruptcy case. An actual intent to deceive with planning and execution must be shown. Innocent mistakes or omissions in filing documents will not likely lead to a criminal conviction because the element of intent is not present.

There are four basic categories of bankruptcy fraud:

• Concealment of Assets: This is the most common type wherein a debtor knowingly hides assets from the trustee. (This is the type of bankruptcy fraud Toni Braxton is being accused of.)
• False Statements: Making false statements in a sworn document or during a bankruptcy proceeding can also be a crime. Typically, however, most bankruptcy courts hold that the false statement must be material, meaning that it must be capable of influencing the outcome of the bankruptcy proceeding.
• Multiple Filings: This type of fraud involves a debtor filing multiple claims in various states. This can be done through false names and information or using a real name but misrepresenting or hiding assets, or a combination of both.
  
• Petition Mills: A third party is generally responsible for this type of fraud. A person pretending to be a bankruptcy consultant will gather a debtor’s personal and financial information and use it to steal from the unsuspecting victim.

The United States Trustee is responsible for investigating bankruptcy fraud and the Department of Justice is responsible for prosecuting. Penalties will range but can be very severe.

Possible Penalties

If convicted, a person may be fined up to $250,000 and/or imprisoned for up to five years in a federal prison.

In addition, the Bankruptcy Code excludes from discharge any debt associated with false representation or actual fraud. This means a debtor found guilty of bankruptcy fraud will have his or her case halted and thrown out of court. Depending on a number of factors, including the severity of the crime and how much debt is owed, the court may refuse to discharge the debts, and the debtor will still be liable for any outstanding payments. In some cases, the court may even liquidate otherwise safeguarded assets to pay creditors. In some cases, deals may be struck to decrease jail time, such as agreeing to pay a percentage of debts owed as opposed to discharging them in bankruptcy.

In Braxton’s case, the court will take into consideration whether she intended to hide assets specifically to avoid paying creditors, and if so, whether the fraud warrants penalties such as jail time or fines. Braxton will have the opportunity to defend her actions in bankruptcy court.