The bankruptcy system provides individuals and families who are in financial distress with the opportunity to restructure their debts or substantially pay them down by liquidating assets, possibly followed by a discharge of many remaining debts. Since bankruptcy is such a far-reaching remedy, federal prosecutors deal quite harshly with fraud and other deceptive acts, such as concealing assets or income. A single count of bankruptcy fraud can result in up to five years in prison. In October 2015, a federal grand jury indicted a reality television star for bankruptcy fraud, based on prosecutors’ allegations that she hid more than $775,000 in income during a Chapter 11 bankruptcy case. United States v. Miller, No. 2:15-cr-00212, indictment (M.D. Pa., Oct. 13, 2015).
When a person files for bankruptcy, typically under Chapter 7 or Chapter 13, they essentially open up their financial life to scrutiny by a court-appointed trustee and the court. Upon the filing of a bankruptcy petition, all of a debtor’s non-exempt assets immediately become the property of a fictitious entity known as the bankruptcy estate. The bankruptcy trustee has the authority to manage and, in some cases, dispose of estate assets, pay debts, and make other major decisions. The debtor must make a full disclosure on schedules attached to the bankruptcy petition of all assets, liabilities, and income, including anything that might be exempt under federal or state laws.
The goal of any bankruptcy case, from the trustee’s point of view, is to pay down the debtor’s liabilities to the greatest extent possible. Creditors want to recover the money they are owed, but the trustee’s job is to make the most efficient and effective use of estate assets. At the end of the bankruptcy case, the court may discharge debts that are not specifically excepted from discharge by law. It is a federal criminal offense for a debtor to conceal assets or income from the trustee or the court, to make false statements or claims, or to commit a wide variety of other deceptive acts. 18 U.S.C. § 152. The government may prosecute any “scheme or artifice to defraud” in connection with a bankruptcy case as bankruptcy fraud. 18 U.S.C. § 157.
The defendant in Miller owns a dance studio in Pittsburgh that trains children for dance competitions. A reality television program about the defendant and her studio, known as “Dance Moms,” has aired on the cable network Lifetime since 2011. She has also appeared on several spin-off shows and other television programs. She filed for Chapter 11 bankruptcy in December 2010, claiming approximately $325,000 in assets and liabilities of over $350,000. She also stated that she is self-employed with a monthly income of $8,899. Her case, according to the indictment, resulted in lengthy stays of execution by multiple creditors, as well as substantial restructuring of debt. The bankruptcy court granted a discharge in December 2013.
According to the Associated Press, “a channel-surfing bankruptcy judge” began to doubt her claimed income after seeing her on television in December 2012. Based on a federal investigation, prosecutors now allege that the defendant concealed income totaling more than $775,000, from television appearances and other projects, during the bankruptcy case. The indictment lists 20 counts: five counts of concealing assets, 18 U.S.C. § 152(1); 13 counts of false statements, 18 U.S.C. § 152(3); and two counts of bankruptcy fraud, 18 U.S.C. § 157(3).
These blog posts are meant to be illustrative only. Unless expressly stated to the contrary herein, these matters are not the result of any legal work of Michael J. Brown, but are used to communicate a particular point of view. Michael J. Brown does not claim credit for any legal work done by any lawyer or law firm either generally or specifically, with respect to the matters contained in this blog.
Board-certified west Texas white-collar crime attorney Michael J. Brown has defended the rights of people facing white-collar and drug-related criminal charges for more than 20 years. To schedule a confidential consultation to see how we can help you, contact us online or at (432) 687-5157 today.
More Blog Posts:
“Octomom” Faces Multiple Welfare Fraud Charges for Allegedly Failing to Disclose Income, Texas Criminal Law Blog, April 17, 2014
Manager of Mortgage Finance Company Convicted in Federal Court of 28 Counts of Fraud, Texas Criminal Law Blog, October 23, 2013
Justice Department Accuses Reality TV Stars of Bank, Bankruptcy, and Tax Fraud, Texas Criminal Law Blog, September 9, 2013