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"Fresh Start or False Start?--
Identity Theft in Bankruptcy Cases"
By Jane E. Limprecht (1)
Executive Office for U.S. Trustees
Washington, D.C. (2)
Janet Doe (3) received an
official-looking letter addressed to her son John. She opened the letter and
discovered that it directed John to appear at a meeting of creditors convened as
part of his Chapter 13 bankruptcy case. Janet was shocked at this notice,
because she knew John had never filed for bankruptcy. John was five years old.
Janet sought help from the nearest United States Trustee field office. She
suspected that John's father--her estranged husband--filed the case to stay an
impending foreclosure of the family home. The father had filed for bankruptcy
twice before, and his second case had been dismissed less than three months
earlier.
Ruth Roe's employment regularly took her away from home for extended
periods of time. At some point, another woman began to impersonate Ruth, using
Ruth's name, Social Security number, and educational and professional licensing
information to take out loans for real property and vehicles in Ruth's name, and
even to obtain a professional license and employment in Ruth's field. The woman
failed to repay the loans, and ultimately filed a Chapter 13 petition using
Ruth's name and SSN. Ruth found out about the long-standing fraud when she
returned from her work assignment and discovered that her credit record was
severely damaged.
One of Beth Boe's friends asked if she could transfer her house into
Beth's name because she had some "tax problems." Beth also co-signed a mortgage
note on her friend's house. After falling behind on the mortgage payments, the
friend filed for Chapter 13 bankruptcy in Beth's name. The friend actually made
payments on "Beth's" Chapter 13 plan for several years. Beth found out about the
bankruptcy when she applied for a vacation loan. The loan was denied because of
the bankruptcy filing and large home loan listed on her credit record.
At the request of her landlord, eighteen-year-old Martina Moe signed some
documents the landlord needed to "help him own property." Martina did not
understand that the documents named her as a co-owner of an apartment building
guaranteed by a Federal Housing Administration loan. Some time later, Martina
was denied credit because she had two bankruptcy filings listed on her credit
record. She discovered that her landlord had filed for bankruptcy in her name to
stay foreclosure on one of his rental properties. In fact, he had filed multiple
bankruptcy cases in the names of numerous current or former tenants and
employees. The U.S. Trustee, the Chapter 13 trustee, and an employee of the
Bankruptcy Clerk had flagged the petitions as unusual; they were all filed on
behalf of pro se debtors by a bankruptcy petition preparer who had previously
used a false SSN, and none attempted to discharge anything but real property
debt.
New Law; Federal Initiatives
Each of these cases represents a variation of identity theft--the use
of another person's personal data in some way that involves fraud or deception,
typically for economic gain. Historically, the "victim" of identity theft was
considered to be the creditor who was deceived into extending goods or services;
the person whose identity was actually appropriated had little legal recourse.
In October 1998, Congress enacted theIdentity Theft and Assumption Deterrence
Act, 18 U.S.C. §1028 ("Identity Theft Act") to ameliorate this situation. The
Identity Theft Act made it a crime to "knowingly transfer[] or use[], without
lawful authority, a means of identification of another person with the intent to
commit, or to aid or abet, any unlawful activity that constitutes a violation of
Federal law, or that constitutes a felony under any applicable State or local
law."
To assist wronged victims, the Identity Theft Act designated the
Federal Trade Commission as the federal clearinghouse for receiving and
processing identity theft complaints, providing information to consumers, and
referring consumers to the appropriate agencies for investigation of their
complaints. (4) In July 2000, an FTC official
testified before Congress that the agency's Identity Theft Hotline, in operation
since November 1999, was already receiving more than 800 calls per week.
(5) About two-thirds of these calls were from consumers who suspected
they were victims of identity theft.
Violations of the Identity Theft Act are investigated by agencies such
as the Federal Bureau of Investigation; the Secret Service, for bank and credit
card fraud; the U.S. Postal Inspection Service, for mail fraud; the Social
Security Administration's Office of Inspector General, for fraud relating to
Social Security benefits; and the Internal Revenue Service, for tax fraud. The
Justice Department handles the prosecution of cases under the Identity Theft
Act. To help coordinate identity theft investigation and prosecution, the
Justice Department created a working group that includes members from Justice
components such as the U.S. Trustees, the FBI, and the Criminal Division; from
other federal entities including the FTC, Secret Service, U.S. Postal Inspection
Service, IRS, and Social Security Administration; and from state and local
governments.
Federal agencies scheduled three identity theft workshops for the fall of
2000. These workshops were designed to build upon the Treasury Department's
March 2000 identity theft "summit meeting," which brought together federal,
state, and local government representatives, consumer advocacy groups, credit
organizations, and others in the private sector to develop a public/private
partnership to prevent identity theft and help its victims. On October 23-24,
the FTC hosted a public workshop focusing on assisting victims of identity
theft, which included a presentation by U.S. Trustee staff. On October 25, the
Social Security Administration held a second public workshop to address means to
prevent identity theft. On December 6, the Justice Department's Criminal
Division and the Secret Service will host a workshop on law enforcement, with
attendance limited to representatives of law enforcement agencies.
Identity Theft and Bankruptcy
A significant number of identity theft cases are related to bankruptcy in
some way. The U.S. Trustee Program's primary role on the Justice Department's
identity theft working group is to outline the various ways in which identity
theft intersects with bankruptcy, and to explain how the Program can assist law
enforcement as it monitors the integrity of the bankruptcy system.
The cases described earlier in this article merely hint at the range
of actions that may constitute bankruptcy-related identity theft. Forms of
bankruptcy-related identity theft include, without limitation:
- Filing for bankruptcy using the name and/or SSN of another known person,
such as a parent, sibling, child, or other relative; a spouse, ex-spouse,
"significant other" or ex-significant other; a current or former business
partner, co-employee, cosigner on a debt, friend, neighbor, or fellow
student; or even a deceased person.
- Incurring debt under a false name and/or Social Security number and then
filing for bankruptcy, using that name and/or number, to discharge the debt.
Sometimes this debt is owed to the government, via a farm loan, small
business loan, student loan, or similar obligation.
- Transferring property into the name of a relative or friend, and then
filing for bankruptcy using that person's name and/or SSN to avoid
foreclosure. Typically the transferee agrees to the transfer "to help out,"
but does not understand the legal ramifications.
- Filing for bankruptcy using a false name and/or SSN that was apparently
randomly chosen, because it does not belong to a person known to the
perpetrator.
- Transferring a fractional interest in real property into the name of an
innocent person whose bankruptcy case is pending. The pending case stays
foreclosure on the perpetrator's real property once the innocent debtor is
listed as a partial owner.
- Using a false SSN when identifying oneself as a bankruptcy petition
preparer.
In many instances, it appears that bankruptcy cases are filed under a
false identity solely to obtain the benefit of the automatic stay, primarily to
delay foreclosure or eviction. In such cases, the filer fails to appear at the
Section 341 meeting of creditors and the case is dismissed. A record of the
filing remains, however, in the court record and on the victim's credit record.
In extreme cases of identity theft, a perpetrator may wholly co-opt
another person's identity--obtaining driver's and professional licenses,
obtaining employment, applying for apartments, taking out home and automobile
loans, applying for credit cards, and even receiving traffic tickets and
warrants under the false identity. Illegal immigration rings have used this
method to create identities for illegal aliens. The false name and SSN are
initially used to obtain employment, and subsequently to establish credit;
ultimately, the illegal alien files for bankruptcy using the false name and SSN
to discharge the debt incurred. Whatever the circumstances surrounding such a
"total identity steal," the bankruptcy filing is only part of a complex scheme
of impersonation, which often collapses only when the victim discovers the
fraudulent bankruptcy cases listed in his or her name.
Warning Signs
Typically, a fraudulent bankruptcy filing comes to the attention of
bankruptcy professionals when the victim contacts the U.S. Trustee's office to
inquire why he or she has received notice of a Section 341 meeting in the mail,
or why a bankruptcy is listed on his or her credit record. There are other
warning signs, however, to which bankruptcy professionals and lenders should be
alert. They include:
- A client's failure to bring a purported joint debtor to meet with
bankruptcy counsel. One debtor wife asked her bankruptcy attorney to let her
take the bankruptcy petition home for her husband to sign, because he was
too busy to come with her to the attorney's office. In fact, she forged her
husband's name on the joint petition and filed it without his knowledge.
- A debtor's failure to appear at the Section 341 meeting. In the case
described above, the debtor wife appeared at the meeting of creditors with a
man who falsely claimed to be her spouse and falsely testified that he had
signed all of the documents. It is much more common, however, for the
fraudulent filer not to appear at the Section 341 meeting. In such a case,
the bankruptcy petition may have been filed solely for the purpose of
temporarily avoiding foreclosure or eviction, without the knowledge of the
true holder of the name and SSN.
- The same real property listed in different bankruptcy cases. This may
indicate that a perpetrator is filing serial cases in multiple false names
to avoid foreclosure on the property.
- Bankruptcy petitions, filed serially in the same or neighboring
jurisdictions, that contain the same debtor's name but different SSNs; the
same names with different middle initials; or slightly different forms of
the same name.
Remedies
Cases of suspected bankruptcy-related identity theft should be reported to
the nearest U.S. Trustee field office
(6). In
addition to harming
the victim,
identity theft clearly impairs the integrity of the bankruptcy system. U.S.
Trustee employees may, if appropriate, pursue various civil enforcement
remedies.
By statute, the Program is a neutral party that represents the
public interest. Thus, U.S. Trustee staff cannot directly represent the victim,
who would be well advised to obtain private counsel to address the specific
problems caused by the identity theft. Nonetheless, civil enforcement remedies
that promote the integrity of the bankruptcy system often benefit the identity
theft victim as well, and staff often work with the victim to obtain information
necessary for enforcement actions. Depending upon the circumstances of the case
and the procedures preferred by the Bankruptcy Courts in the local jurisdiction,
actions by U.S. Trustee staff may include:
- Moving to dismiss a pending case in which the bankruptcy filer used a
false name and/or SSN. In some cases the U.S. Trustee also seeks a specific
court finding that the named person did not file the case or authorize the
filing, and that the signature was a forgery.
- Moving to expunge or void a pending or closed case. The U.S. Trustee
seeks expungement from the case docket as well as the court's automated
system, and in some cases seeks to have the hard copy of the case file
sealed.
- Moving to correct the debtor's SSN in the bankruptcy court record.
- Moving to have the discharge revoked or the discharge date extended
until the SSN is corrected.
- Moving for an in rem order for relief from the automatic stay with
respect to all real property interests in the debtor's name.
- Moving to vacate the order for relief.
- Placing the burden upon the debtor to amend the petition to correct the
SSN; to obtain a court order that the true holder of the number did not file
the bankruptcy case or authorize it to be filed; and to serve that order
upon the three major credit reporting agencies.
- As in any other case of suspected criminal bankruptcy fraud, assisting
law enforcement by helping to obtain relevant information and documents,
advising on bankruptcy law, providing expert testimony at trial, and
generally providing expertise on bankruptcy law and procedure.
New Identification Procedure
Over the last few years, a number of U.S. Trustee offices and private
trustees have introduced procedures to better detect the use of a false name
and/or SSN in bankruptcy cases. In some districts, for example, the U.S. Trustee
requires photo identification or notarized verification of SSN for Section 341
meetings conducted by tele-conference. In other districts, Chapter 7 and Chapter
13 trustees require debtors to produce photo identification and proof of SSN.
The U.S. Trustee Program has begun work to initiate, in 19
districts, a pilot program that will require identification at the Section 341
meeting. The pilot program is modeled after the Program's first region-wide
debtor identification procedure, launched by Region 11 U.S. Trustee Ira
Bodenstein in the fall of 1999. All Chapter 7 and Chapter 13 debtors who file in
the region--which consists of Wisconsin and Northern Illinois, with headquarters
in Chicago--are now required to provide the panel trustees and standing trustees
with proof of identity and SSN at the Section 341 meeting.
Region 11 adopted this policy after uncovering a substantial number of
instances of incorrect SSNs on bankruptcy petitions. While some of these were
typographical errors, others were instances of Social Security and/or identity
fraud that were referred to the U.S. Attorney's office for prosecution.
Region 11 initiated the identification procedure in September 1999 with
the Chapter 7 panel trustees in Chicago. By mid-November 1999, all panel
trustees and standing trustees in the region were requiring all debtors to
comply. In general, implementation proceeded smoothly, and practitioners in the
region now routinely inform their clients that proof of identity and SSN will be
requested at the Section 341 meeting. Acceptable forms of identification include
a driver's license, state identification card, or passport. Proof of SSN may be
provided through documents such as a driver's license, Social Security card, or
payroll check stub.
If a debtor fails to provide adequate proof of identity and SSN at the
Section 341 meeting, the trustee automatically continues the meeting to the
trustee's next date for meetings. If the debtor provides an SSN different from
the one listed on the petition, the trustee asks the debtor to explain the
discrepancy, reports the matter to the U.S. Trustee field office, and continues
the Section 341 meeting; the debtor's attorney is expected to file an amended
petition with the correct SSN before the continued meeting date. The debtor's
attorney may be required to notify the three major credit reporting agencies
that the SSN was used erroneously.
If debtor's counsel does not file the amended petition, the trustee
delays the filing of the no-asset report and/or seeks dismissal of the case.
Before the continued Section 341 meeting, the U.S. Trustee field office
investigates whether the incorrect SSN was used intentionally or inadvertently,
using a proprietary public records search data base. If it appears that the use
was intentional, the U.S. Trustee or the private trustee files a motion to
dismiss the case or deny discharge, and the matter is referred to the U.S.
Attorney for criminal prosecution.
Typographical errors in SSNs have declined noticeably since this
identification procedure was instituted in Region 11, resulting in a more
reliable official record. In addition, the new policy has helped to maintain the
accuracy of innocent victims' credit records, by identifying incorrect use of an
SSN long before the victim might otherwise have learned of the error.
Clearly, this identification procedure will not catch all instances of
bankruptcy-related identity theft. Some filers will fail to attend the Section
341 meeting; others may produce false identification at the meeting. As the
nationwide pilot program takes shape, however, the identification procedure will
be fine-tuned--with input from the bankruptcy community--to improve its
efficiency and effectiveness within each pilot location. Taken as a whole, the
Section 341 meeting identification procedure, the civil enforcement remedies
pursued by U.S. Trustee staff and private trustees, and the Program's continuing
participationwith concerned public and private groups will help fight
bankruptcy-related identity theft.
End Notes
1. All views expressed in this article are those of the
author and do not necessarily represent the views of, and should not be
attributed to, the United States Department of Justice or the United States
Trustee Program.
2. The author wishes to thank the United States Trustee
Program employees who provided information for this article. For more
information about bankruptcy-related identity theft, see "'What Do You Mean, I
Filed Bankruptcy?' or How the Law Allows a Perfect Stranger to Purchase an
Automatic Stay in Your Name," Maureen Tighe (United States Trustee for Region
16) and Emily Rosenblum, 32 Loyola of Los Angeles Law Review 1009 (June 1999).
3. These examples of identity theft are based on cases
reported to the United States Trustees, but the names of all individuals have
been changed.
4. To help disseminate information to the public, both the
Justice Department and the FTC have developed web sites containing a wealth of
information about identity theft. The Justice Department web site is
www.usdoj.gov/criminal/fraud/idtheft.html. The FTC web site is
www.consumer.gov/idtheft.
5. Testimony of Jodie Bernstein, Director of the FTC's
Bureau of Consumer Protection, before the Senate Judiciary Committee's
Subcommittee on Technology, Terrorism and Government Information (7/12/00).
6. Contact information for United States Trustee field
offices is available at www.usdoj.gov/ust.
Bankruptcy Basics - For Cases Filed on or after October 17, 2005 (pdf)
Bankruptcy
Basics - For Cases Filed before October 17, 2005 (pdf)
