Real Housewife Star Faces Allegations About Bankruptcy Fraud

United Press and about two dozen tabloid web sites and blogs are reporting that reality TV star Teresa Guidice, and her husband Joe have been sued by their Chapter 7 trustee for failing to report assets in their bankruptcy petition. Guidice, one of the “Real Housewives of New Jersey,” apparently signed a book contract for a cookbook that will pay her $250,000 but failed to reveal that asset on her petition. The trustee also alleges that the tax returns submitted by Teresa and her husband were fraudulent as well.

Setting aside the question of why a book publisher thinks it can make back a quarter of a million dollars on sales of Teresa Guidice’s “Skinny Italian” cookbook, what Teresa and her husband are facing is a complaint under Section 727(a)(4) of the Bankruptcy Code, which bars a Chapter 7 discharge to a debtor who knowingly and fraudulently, in or in connection with the case—

(A) made a false oath or account;

(B) presented or used a false claim;

(C) gave, offered, received, or attempted to obtain money, property, or advantage, or a promise of money, property, or advantage, for acting or forbearing to act; or

(D) withheld from an officer of the estate entitled to possession under this title, any recorded information, including books, documents, records, and papers, relating to the debtor’s property or financial affairs;

According to the trustee, Teresa’s book contract is an asset of the estate and these funds should be available to creditors. If the trustee is successful with his complaint, Teresa and Joe’s Chapter 7 case will be dismissed and their creditors will have free rein to initiate collection activities against them.

Section 727 complaints contemplate a severe penalty. Unlike a complaint to determine the dischargeability of a debt, a 727 complaint cannot be settled – either the debtors acted fraudulently or they did not. If a judge accepts that the debtors acted fraudulently he will have no choice but to deny the possibility of discharge and terminate the case.

Criminal prosecution arising from fraudulent bankruptcy filing is also possible – hopefully, for Teresa’s sake, these exploits will turn into higher ratings.