Lying about income on applications?

[copperhead]

Misrepresent Income on Credit Card Application

A friend of mine has repeatedly misrepresented his income on all of his cr cards:. BofA, AMEX, Citi, Discover, ect. He has recently maxed all of them out and stopped making payments. Amount owed is approx. $100k. He told AMEX that he makes $200k /year, as he was making $40k. No FR was ever requested.

Can the cc companies try to bring criminal charges against him for deliberately lying on a cc application? I've only heard about ONE other case when an Iranian couple was sentenced to prison for making a false statement on a cc application (google the name Sedighe HONARVAR and see it for yourself).

My friend talked to several experienced criminal attorneys. No one believes that criminal charges will be brought up especially in today's massive default wave.
Does anybody has any information to support that?

[justbroke]

Can the cc companies try to bring criminal charges against him for deliberately lying on a cc application? I've only heard about ONE other case when an Iranian couple was sentenced to prison for making a false statement on a cc application (google the name Sedighe HONARVAR and see it for yourself).

They could, but you the key is that the Financial Institution has to be able to prove fraud and that the institution took reasonable steps to prevent such fraud.

For example... all those people who lied about their income on the No Documentation - Income Only mortgages. Since the Bank didn't take reasonable measures to insure that the income was reported properly, they really have no recourse.

I would say that the only way to be convicted of criminal fraud in a credit case, is if you submitted false supporting documentation, such as forged or made up taxe returns, to the lender/bank.

I was checked on by American Express once. They froze about $60K in credit lines while I submitted an IRS Form 4506-T to get transcripts from 3 prior years. It proved my income, and actually exceeded what I told them.

Had I submitted false IRS Tax Returns to them, that would be provable fraud. However, AMEX is smart and gets a 4506-T instead, so that they get the same thing you submitted to the IRS.

[TurnThePage]

[justbroke]

If by submitting a credit application, are you committing fraud by listing income you anticipate receiving in the future?

No. Many business credit applications ask for gross revenue... and you can put projected.

"Gross annual income," is this past, present, or future?

It should be present.

If your business does not generate the income you stated (and expected) on this Application, if it substantially contradicts your income listed on your Schedules when you filed for Bankruptcy, can a Creditor bring an Adversarial Proceeding against you for "fraud?"

Fraud is mostly difficult to prove. Even in the cases where an AP (complaint) was brought by the creditor, Judges have consistently stated that "projected" or "future" intent to earn money, is good enough for a person to incur debt. Isn't that what most of us do anyhow?

Any creditor has a fiduciary responsibility to at least check your finances before giving you money.

[TurnThePage]

http://www.nynb.uscourts.gov/usbc/utidec/Jenks072209.pdf

The transcript reads as follows: "To this end, the Plaintiff must establish that (1) the Debtor made a false representation; (2) that the Debtor knew the representation was false at the time it was made; (3) that the Debtor made
the false representation with the intent to deceive the Plaintiff; (4) that the Plaintiff justifiably relied on the representation; and (5) that the Plaintiff sustained a loss that was proximately caused by the false representation." *

* All 5 Elements must be in place?

My actual income versus credit applications from 2008 is similar to this case, however .... in my "Answer" to a possible "Complaint to Determine Dischargeability," would I be able to raise my business as a defense? My business was listed on the Petition. With possible allegations of fraud, could I use the argument that I genuinely believed that I would be earning 48K (in the future) through such computer work as web design, Google's AdSense, Amazon's referral fees etc.? Or am I screwed I hope to be able to @ least litigate the issue pro se, as my Attorney will charge $300 an hour for an AP.

I'm just thinking ahead like in a game of chess. I've spent many sleepless nights wondering if I'll be granted a fresh start.

Any thoughts will be greatly appreciated.

[justbroke]

I would not worry. Remember, the creditor needs to file a complaint (adversary proceeding) and bring forth evidence of fraud. In most of the cases I've read, the debtor prevailed!

[TurnThePage]

Thank you, Just Broke, for your replies.

Any creditor has a fiduciary responsibility to at least check your finances before giving you money.

I totally agree with that -- it seems silly, however, that some will attempt to retaliate in an AP, since they can't go after you with the original credit card agreement.

I learned my lesson the hard way. I was smart in the past when I avoided credit cards like the plague -- but it is definitely better to be "just broke" than drowning in debt LOL. My giant credit lines gave me an illusion that I actually had more income. The minimum payment system is designed to get you into debt quickly and to easily live beyond your means.

[shabam]

Thank you, Just Broke, for your replies.



I totally agree with that -- it seems silly, however, that some will attempt to retaliate in an AP, since they can't go after you with the original credit card agreement.

I learned my lesson the hard way. I was smart in the past when I avoided credit cards like the plague -- but it is definitely better to be "just broke" than drowning in debt LOL. My giant credit lines gave me an illusion that I actually had more income. The minimum payment system is designed to get you into debt quickly and to easily live beyond your means.

You're preaching to the choir here.

[hereforinfo]

They could, but you the key is that the Financial Institution has to be able to prove fraud and that the institution took reasonable steps to prevent such fraud.

For example... all those people who lied about their income on the No Documentation - Income Only mortgages. Since the Bank didn't take reasonable measures to insure that the income was reported properly, they really have no recourse.

Actually, the bank's fiduciary duty differs depending the industry standard guidelines for the particular type of loan. The industry guidelines for no doc loans didn't require the lenders to verify income. There were other guidelines they had to follow and document such as making a determination of whether the stated income seemed reasonable for the job type or receiving a letter signed by a CPA simply verifying the existence of the borrower's business or self employment. But no verification of income.

In the case that gets brought up on here all the time regarding the borrowers who lied on their stated income mortgage application, the bank lost not because they didn't verify the income; but because the underwriter was sloppy and didn't document his/her process of determining if the income seemed reasonable and the letter they had on file from a CPA wasn't actually signed by the CPA. Kind of a lucky technicality for the borrowers who lied.

Regarding credit card applications, most don't verify income so it would be difficult to say that the bank had a fiduciary duty to do so. I think it would also be tough to argue that it was your projected income unless you had a history of similar income or could prove you had real reason to believe you were going to earn that amount in the year.

That said, most banks aren't going to notice unless they have reason to snoop around your case for something else, like if you charged a huge amount without making many payments, large purchases recently, etc.

[justbroke]

Actually, the bank's fiduciary duty differs depending the industry standard guidelines for the particular type of loan. The industry guidelines for no doc loans didn't require the lenders to verify income.

The banks do so, and have done so, at their peril. An Industry Standard does not mean much when it comes to a defense for a lack of diligence. There are credit scoring models that can guess at your income. Only American Express did a 4506-T (IRS Transcript) on me to prove income. To me, that was smart on their part.

I will still rest on the fact that banks are responsible for taken reasonable precautions regarding income, credibility, and credit worthiness. There are many Judges in Bankruptcy who would and have stated that the "industry guidelines" with those types of loans are even reasonable. That means that they aren't attacking some underwriting problem. They are attacking the "guideline" where the loan is really based on the collateral's value and not on the individual's income. So, since income doesn't matter... the amount of income doesn't matter.

I'd like to read about some BK cases where it wasn't based on the forgoing facts.

[shabam]

When I was living in the UK, what was quite evident in their application process, was the thoroughness. No such thing as household income only applications. Many applications asked for detailed information on your actual living status and expenses, to your specific actual income. Sending two recent pay stubs was also quite the norm, even for credit card applications.

I remember applying for credit here which only asked for household income, SSN and a signature. It's absurd that this bank can then turn around and use this against anyone. In this area, the banks have covered their butts with contractual causes of basically it's up to use to verify and be accurate. They used ambiguity to push credit. If an account goes to court, the ambiguity in their applications was another thing that works to their favor.

[hereforinfo]

The banks do so, and have done so, at their peril. An Industry Standard does not mean much when it comes to a defense for a lack of diligence. There are credit scoring models that can guess at your income. Only American Express did a 4506-T (IRS Transcript) on me to prove income. To me, that was smart on their part.

I will still rest on the fact that banks are responsible for taken reasonable precautions regarding income, credibility, and credit worthiness. There are many Judges in Bankruptcy who would and have stated that the "industry guidelines" with those types of loans are even reasonable. That means that they aren't attacking some underwriting problem. They are attacking the "guideline" where the loan is really based on the collateral's value and not on the individual's income. So, since income doesn't matter... the amount of income doesn't matter.

I'd like to read about some BK cases where it wasn't based on the forgoing facts.

Yes, but credit cards don't have collateral. And as for mortgages, the "industry standard" is actually the guidelines created by the government backed freddie mac and fannie mae.

[justbroke]

Yes, but credit cards don't have collateral.

Then they do so at their peril, since they have no security interest in anything purchased. (In liited instances, department store credit cards actually do add conditions in the credit card agreement which grants them a "consensual" purchase-money security interest in all things purchased with that card. Smart.)

Dumb and indefensible, are those credit card companies (MC, VISA, AMEX) who require no collateral and no proof of income. I have read cases where the only time the "lying" about income mattered, was when the creditor proved other components of fraud. Reliance upon a statement of income is not sufficient to warrant a finding of fraud.

I think we just don't agree on what actually constitutes fraud.

1. Proof of income - easily determined by asking for tax transcripts or copies of returns
2. Proof of address - easily determined by mailing them something at that address and/or asking for a copy of a piece of identification
3. Proof of social security number - ask for their social security card, IRS tax transcripts..

The fact that a lender fails to take reasonable precautions to insure that they are being diligent and granting the appropriate credit lines to the right people... doesn't just dump it back on the person who "overstated" income on an application. In any event, the lender needs to prove that they relied upon that information. In almost all these cases, the lender didn't rely upon your income statement, but relied upon a 3 digit number known as the FICO or Beacon Score (or some other scoring model), which only went to the likelihood of you paying the debt back... not qualifying you to obtain that amount of debt.

This just reminds me too much of that new movie The Invention of Lying. I have $800 in my bank account! LOL

And as for mortgages, the "industry standard" is actually the guidelines created by the government backed freddie mac and fannie mae.

Only for loans that are written under those programs! There are and were many loan programs that didn't follow Fannie/Freddie guidelines. For purposes of re-sale (secondary market and collateralization) some standards were done in order to insure the portability of the underwriting aspects to that the loan could easily be sold after it's funded and recorded.

[hereforinfo]

Whether the creditor can win may not matter. They could file a lawsuit knowing you may not be afford to fight it, and that you would likely agree to settle out of fear knowing that you really did misrepresent the income. Is that likely? No. But the possibility is higher if other circumstances exist along with it, such as a very large amount of debt, or luxury charges made a short time before filing. If you really thought you would earn X amount that year and then your sales/income dropped then you probably have nothing to worry about.

[MiSSMaGoo]

I type all this up and just now realize this is an outdated thread....sorry....so yeah, what happened? Or maybe he's in the clink?

Oh your post made me literally laugh out loud. Not that it's funny but just the way you wrote it, is kinda.