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BANKRUPTCY FRAUD JAIL TERMS PUT WOULD-BE CHEATS ON NOTICE

Michael Myrtle of Lockport filed Chapter 13 bankruptcy, telling his creditors he was in deep financial trouble and could afford to pay off only a small portion of his bills.

But he did not inform his creditors when he later received $85,000 from a lawsuit.

Myrtle is going to federal prison for eight months.

Albert L. Knapp III of Dansville transferred $14,096 to his son in Florida. Four days later, Knapp filed for bankruptcy.

He, too, is looking at prison time.

The two recent cases are cited by the region's chief bankruptcy judge as part of a fraud crackdown that will not go easy on violators.

With Western New Yorkers filing bankruptcies in record numbers for the fourth consecutive year, court officials and FBI agents are looking out for people cheating the system, Bankruptcy Court Judge Michael J. Kaplan said.

In the first seven months of this year 4,391 bankruptcies were filed in Buffalo, a 3 percent increase over the record set last year. Critics of the system claim it is too easy to file a case and too easy to cheat.

"Because the numbers are up, there may be a greater risk of failing to detect fraud," Kaplan said Friday. "But to those people who think they're going to get away with it, my response is: If we catch you, we'll be requesting the harshest possible penalties."

If authorities suspect fraud, they will refer the case to U.S. Attorney Denise E. O'Donnell and the FBI for investigation, Kaplan said.

Kaplan said he believes most people who file bankruptcy are not trying to abuse the system. But he is disturbed that some filers -- nearly 10 percent by his estimation -- cheat by failing to report all their income and possessions, putting cars and boats in the names of other people, or other ruses.

Anyone who knowingly puts false information in a bankruptcy petition can be prosecuted for fraud, the judge said.

"A court system cannot function if we can't believe the things that people tell us under oath," Kaplan said. "But it would be naive for us to ignore the fact that some people are going to lie."

He noted that Myrtle, 51, was recently sentenced to eight months in prison and that Knapp, 53, could face six to 12 months in prison because they failed to be honest with court officials. Both pleaded guilty to felony fraud charges after investigations by the Buffalo FBI office.

"I want the public to be aware that we are looking for signs of fraud and that people can go to prison if they're caught," Kaplan said.

Assistant U.S. Attorney Paul J. Campana prosecuted the two cases and specializes in bankruptcy fraud investigation.

"These are two incidents involving men who accumulated a lot of debt and then came into a windfall and did not want to share their windfall with their creditors," Campana said.

According to court papers, Myrtle filed for bankruptcy in late 1995 and then failed to report to his bankruptcy trustee that he had been awarded $85,000 in a lawsuit. Part of the proceeds would have been used to pay off his debts if Myrtle had reported receiving the money.

Myrtle and his attorney, Daniel Brick, could not be reached to comment.

Authorities said Knapp sent $14,096 to his son in Florida and then filed for bankruptcy four days later in January 1996. His bankruptcy petition reported $58,000 in debts and $36,000 in assets. It did not mention the $14,096, which could have been used toward his debts.

"He knows what he did was wrong. He was trying to help a family member," said Knapp's attorney, Joseph Mistrett of the federal public defender's office.

Campana said anyone who wished to report a bankruptcy fraud can contact the Buffalo FBI office at 856-7800.

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