Phebe Ibrahim Pleads Guilty to Bankruptcy Fraud Scheme

St. Peters, MO woman Phebe Ibrahim, 50, admitted today in Federal Court in East St. Louis, IL, to running a systematic bankruptcy fraud operation that ripped off desperate debtors and defrauded the federal court system. Ibrahim, who once went by the name “Phebe Khan,” pleaded guilty to 21 felony counts, including seven counts each of bankruptcy fraud, causing false statements under penalty of perjury, and falsifying records in bankruptcy cases.

Though not a licensed attorney, Ibrahim operated as a bankruptcy petition preparer, crafting filings for individuals seeking relief in the U.S. Bankruptcy Court for the Southern District of Illinois. Federal law strictly limits such preparers to fees no higher than $150 and requires full disclosure of their involvement. Ibrahim flouted both rules, routinely charging clients far above the legal cap while hiding her role entirely by omitting her name from documents and instructing clients to keep her name out of court proceedings.

The fraud went deeper. The Bankruptcy Code mandates that debtors undergo credit counseling before filing. Ibrahim bypassed the law by submitting forged “Certificates of Counselling” that falsely claimed her clients had completed the required sessions. These documents, submitted under penalty of perjury, were outright lies designed to manipulate the system and fast-track filings—all while lining her pockets.

Nancy J. Gargula, United States Trustee for Southern and Central Illinois and Indiana (Region 10), slammed Ibrahim’s actions as predatory. “The U.S. Trustee Program works with other law enforcement agencies to track down and pursue bankruptcy petition preparers who fail to comply with the requirements of the Bankruptcy Code, circumvent its provisions and prey on consumers in financial distress,” Gargula stated. She praised the collaboration with the U.S. Attorney’s Office and urged the public to report suspected fraud via USTP.Bankruptcy.Fraud@usdoj.gov.

Each count of bankruptcy fraud and false statement carries up to five years in prison and a $250,000 fine. The falsification of records charges are even steeper—up to 20 years per count and the same maximum fine. Ibrahim now faces a sentencing hearing on May 10, 2018, at 9:30 A.M. at the Federal Courthouse in Benton, IL, where she could be handed a crushing cumulative sentence.

The case was referred by the U.S. Trustee and investigated by FBI agents from the Springfield Division, Fairview Heights Resident Agency, working with the Southern Illinois Bankruptcy Fraud Working Group. Assistant United States Attorney Scott A. Verseman is prosecuting. The crackdown signals a wider federal push to root out corruption in bankruptcy courts—a system meant to protect the vulnerable, not enrich those who exploit them.