Serial bankruptcy filings initiated to delay creditor action can lead to criminal charges

In United States v. Williams, Case No. 17-2244 (7th Cir., June 6, 2018), the Seventh Circuit upheld a jury trial verdict against Charlise Williams on five counts of bankruptcy fraud related to her actions during 5 successive Chapter 13 cases, and also concluded that the District Court correctly sentenced her to 46 months in prison. Notably, a key component of the underlying indictment was the allegation that Ms. Williams filed for Chapter 13 relief “when [she] knew that he or she had no intention to perform the respective Chapter 13 plans, but instead had filed the Chapter 13 bankruptcy case for the purpose of fraudulently invoking the automatic stay against creditors seeking to enforce a security interest” in the defendant’ condominiums. This case should give pause to debtors and their attorneys who serially file bankruptcy cases solely to invoke the automatic stay and impede creditor action.

More specifically. when Ms. Williams first fell behind on her mortgage and condo association fees in 2003, she filed the first of five Chapter 13 bankruptcy cases, as part of the scheme to delay her creditors. The filing of a Chapter 13 case imposes an automatic stay that prevents creditors from collecting debts against the debtor. In each case, Williams filed and obtained court approval of a Chapter 13 repayment plan, even though she had no intention of making the payments under the plan. When she failed to make the payments, her bankruptcy cases were dismissed. Once creditors started collection efforts again, Williams would file a new Chapter 13 bankruptcy so that the automatic bankruptcy stay went into effect again, thereby blocking creditor action.

In addition, after her second bankruptcy case was dismissed, Williams temporarily transferred her condominium to her companion, Ekkehard Wilke, for no consideration. With title in his name, Wilke obtained two mortgages secured by the condo. Neither he, nor Williams, paid these mortgages as required, and Wilke eventually transferred the condo back to Williams. In her subsequent bankruptcies, Williams did not disclose the transfers of the condo. Williams also represented to the bankruptcy court that Wilke was going to make monthly contributions to the repayment plan in one of her cases, but Wilke testified at trial that he did not agree to this and that the representation was false.

Williams’ fifth and final Chapter 13 bankruptcy was dismissed in 2009, and the bankruptcy court barred her from filing a new bankruptcy case for 180 days. Williams’ condo association initiated eviction proceedings against her. Williams and Wilke schemed to prevent the eviction by transferring title to the condo once again from Williams to Wilke and then Wilke filed a Chapter 13 bankruptcy. Wilke admitted in Court that he testified falsely in the case to protect Williams and Wilke’s Chapter 13 case was dismissed.

Williams and Wilke were both charged with bankruptcy fraud under §157(1) and §157(2) of title 18, which make it a crime for a “person who, having devised or intending to devise a scheme or artifice to defraud and for the purpose of executing or concealing such a scheme or artifice or attempting to do so--(1) files a petition under title 11, including a fraudulent involuntary petition under section 303 of such title [11 USCS § 303]; [or] (2) files a document in a proceeding under title 11 18 U.S.C.S. § 157. Wilke plead guilty to a misdemeanor and cooperated with the Government. Williams was found guilty on all counts after a full trial and was sentenced to 46 months in prison. The questions on appeal to the Seventh Circuit were limited to a narrow evidentiary ruling and a challenge to the sentence received by Williams. The Court affirmed the trial court on both matters. While the misconduct in Williams was egregious, the case provides a warning that serial bankruptcy filings can rise to the level of bankruptcy fraud and lead to criminal charges and severe penalties, including lengthy prison sentences.

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