Central District of California - 2012 Pro Se Annual Report

Fraud and Abuse

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Abuses such as the use of bankruptcy to stall a foreclosure action that has no connection to the named debtor (“hijacked” case), or debtors not realizing that the “loan modification” services they were paying for resulted in repeated incomplete bankruptcy filings, have all continued in 2012. There were also hundreds of runners or BPPs who simply ignored the orders to show cause to explain what they were doing when they brought in a case for a self-represented debtor.

Although the Debtor ID cases and database are still being studied, preliminary data shows at least 2,000 cases were filed in 2012 where someone other than the debtor filed the case, there was no disclosure of assistance, and the case was dismissed without meeting the basic requirements of the Bankruptcy Code such as complete schedules or attendance at the meeting of creditors. Although the Court has long known there are a tremendous number of completely abusive filings in this district, the Debtor ID Program has documented that unidentified parties are essentially obtaining 2,000 temporary restraining orders (via the automatic stay that is imposed at the moment the petition is filed) with no judicial involvement and no real idea of who caused the bankruptcy filing. The debtors are routinely advised not to show up in response to the orders to appear or they may not even know that a bankruptcy was filed in their name.

The hearings have raised awareness in the community regarding fraud schemes as well as the self-help services available to pro se debtors at the Court. In addition, the hearings have also raised awareness among the law enforcement community, particularly local authorities, about the use of bankruptcy in foreclosure fraud. As of this writing, the Los Angeles County District Attorney’s Office, the Los Angeles County Sheriff’s Office, the Santa Barbara County District Attorney’s Office, and the Federal Bureau of Investigation have opened investigations related to bankruptcy and foreclosure fraud referrals made by the Court.

The Santa Barbara County District Attorney’s Office obtained a felony plea from Franklin David Marquez in part based on information arising out of hearings where this program sought to find out who filed certain bankruptcies. The District Attorney is also pursuing charges against another person of interest as a result of testimony in this program.

The Riverside Division had approximately 15 stipulations and orders between BPPs and the U.S. Trustee, where BPPs have agreed to disgorge all or a significant amount of the funds received from debtors and to either stop preparing petitions altogether or suspend practice for a significant amount of time and resume after additional training. The U.S. Trustee has also entered into approximately five informal agreements where BPPs have agreed to discontinue preparing petitions. The 2012 hearings in the San Fernando Valley Division resulted in 62 fines and six disgorgement orders. Numerous others fines and disgorgements were entered as a result of the project in other divisions, but the totals have not been tracked.

  1. Debtor ID Program
  2. Bankruptcy Petition Preparer (BPP) Tracking
  3. Chapter 7 Success
  4. Chapter 13 Failure
  5. Burden on Court Staff
  6. Fraud and Abuse
  7. Language Barriers
  8. Professional Involvement in “Pro Se” Fraud Cases