Abby Lee Miller’s Bankruptcy Case

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It sounds like Dance Moms star Abby Lee Miller made some shocking claims in her initial bankruptcy filing, which is why perhaps she is dealing with a bankruptcy fraud case.

Abby Lee Miller’s Bankruptcy Case

As Abby Lee Miller prepares for her federal bankruptcy fraud case, it has been revealed that the 49-year-old made claims of making a monthly income of $8,882.55 when she filed for Chapter 11 bankruptcy filing on Dec. 3, 2010. Yet, in a December 2010 Small Business Monthly Operating Report, Miller listed her monthly expenses of $11,525.40, which left her with a negative net income of over $2,600.

Additionally Miller claimed to have assets and liabilities ranging between $100,001 to $500,000, $3,088.13 in unpaid bills and $26,000 in local and school taxes owed, and an “unanticipated expense of $6,025 to file for bankruptcy.” She claims that she borrowed the money to file the bankruptcy.

Miller also alleged that her customers owed her $7,356, inclusing $500 from Chloe Lukasiak’s parents and $800 from Brooke and Paige Hyland’s parents. She also claimed to be in debt for over $3,000 for costumes and a seamstress.

While the court granted Miller discharge from her Chapter 11 case in 2010 after three years of bankruptcy proceedings, she now faces to two counts of bankruptcy fraud, five counts of concealment of assets, and 13 counts of making false bankruptcy declarations. She pleaded “not guilty” to all charges.

What is Chapter 11 Bankruptcy

Chapter 11 bankruptcy is the most common form of bankruptcy filed by businesses. This form allows businesses to either reorganize or liquidate assets to repay creditors. Usually Chapter 11 filings lead to reorganizations where the business is allowed to continue operations while paying off creditors.

Individuals are allowed to file Chapter 11, but this is rare and usually reserved for individuals that have a large amount of money.

If Found Guilty

If Miller is found guilty of committing bankruptcy fraud, she faces 5 years in prison in addition to $5 million in fines. She is alleged to have hidden more than $775,000 in earnings that she made from appearing on her Lifetime reality series. “Criminal prosecution is appropriate when debtors corrupt the bankruptcy process through deceit and lies before the court,” said U.S. Attorney David J. Hickton on announcement of Miller’s indictment.

According to the indictment, Miller orchestrated a shell game to conceal bankruptcy assets following her 2010 Chapter 11 bankruptcy petition. She also made false declarations in an attempt to reorganize the dance studio business she rose to fame with. That shell game involved accountants and family members. According to the indictment, “It was further a part of the scheme and artifice to defraud that in order to conceal her TV show income, Miller directed Collins Avenue to pay approximately $51,800 of Miller’s TV show talent fees to her mother, Maryen Miller."

The investigation was initiated by the feds after the judge presiding over Miller’s bankruptcy filing saw an episode of Dance Moms and grew suspicious about where the money from the show was. Despite the fact that it is mentioned several times within the indictment that Miller paid funds to third-party vendors and others, Collins Avenue was not named as a defendant.

Lifetime has not commented on the case, but others that are taking Miller to court have things to say:

“Fraud and dishonesty in bankruptcy proceedings undermines the integrity of these important proceedings and especially hurts the creditors and American Taxpayers,” said IRS agent Akeia Conner. “Concealing assets from the Court and not paying taxes is a gross violation of civic duty, and IRS Criminal Investigation will work diligently with our law enforcement partners to pursue those who do so.”

What’s clear is that Miller was concealing a lot of money even though she was discharged from her Chapter 11 bankruptcy filing. Her bankruptcy plan “was approved by the bankruptcy court despite the fact that Miller knowingly concealed from the Trustee, creditors and the Court a substantial amount of business income which she earned from her appearances as the featured performer on the reality television program Dance Moms, and related spinoff TV programs, as well as income she earned from Masterclass dance events and online merchandise sales from Abby Lee Dance Company.com.”

Bankruptcy Fraud

There are typically four forms of bankruptcy fraud:

  • intentionally hiding or concealing assets

  • credit card fraud

  • intentionally filing incomplete or incorrect forms

  • Filing bankruptcy with false or real information in multiple states

Proving bankruptcy fraud can be difficult and requires proof that a defendant knowingly and fraudulently made a misrepresentation of material fact. A bankruptcy fraud conviction carries a sentence of up to five years in prison, or a fine of up to $250,000, or both.

Charges for Bankruptcy Fraud

Bankruptcy crimes are not actually prosecuted in the bankruptcy court, but rather are prosecuted by the United States Attorney in the Federal Courts.

If a bankruptcy trustee suspects bankruptcy fraud is occurring, the trustee will make a criminal referral to the Office of the United States Trustee. The case and investigation is then passed along to the United States Attorney, the Federal Bureau of Investigation, or other appropriate federal agency.

Federal prosecutors are able to bring charges for suspected bankruptcy fraud under 18 U.S.C. § 151. To prove that fraud has occurred, prosecutors must show that the defendant knowingly and fraudulently made a misrepresentation of material fact. Bankruptcy fraud carries a sentence of up to five years in prison, or a fine of up to $250,000, or both.

Why You Should Work with a Chapter 11 Bankruptcy Attorney

While Abby Lee Miller has found herself in hot water for committing bankruptcy fraud, it’s important to understand that filing for Chapter 11 does not have to be a complicated process. While there is a lot involved, working with a phoenix chapter 11 bankruptcy lawyer can greatly ease the process. Here’s a quick overview of what you can expect when you work with a skilled professional.

The Filing Process

The Chapter 11 bankruptcy process begins with the filing of a petition in bankruptcy court. Typically the debtor in these cases are corporations, partnerships, and limited liability companies. It should be noted that individuals are able to file Chapter 11 if they have too much debt or income to be able to qualify to file for Chapters 7 and 13.

While Chapter 11 is usually voluntary, sometimes creditors will file an involuntary Chapter 11 against a defaulting debtor.

Typically a debtor will file Chapter 11 where their primary place of business is located, but debtors are also able to file where they are “domiciled." This just means where the business is incorporated or otherwise organized. The process can take anywhere from a few months to be finished, or can continue up to six months to two years.

Business Operations Typically Continue But Court Handles Major Decisions

While most Chapter 7 cases require that a trustee be appointed, a trustee is usually not appointed in Chapter 11. Rather, a debtor will continue day-to-day business operations as a “debtor in possession” (DIP).  A bankruptcy court is able to appoint a trustee if it feels that the debtor has committed fraud, dishonesty, incompetence, or gross mismanagement of the debtor’s affairs.

Though a debtor is able to continue business operations, most major decisions are handed over to a bankruptcy court. Additionally, the bankruptcy court must approve the following:

  • any sale of assets, including property or real property. This excludes inventory sold by a retail debtor during ordinary course of business
  • either entering or breaking a lease of real or personal property
  • mortgages or other secured financing arrangements thatwill allow a debtor to borrow money after the bankruptcy case is filed
  • shutting down business operations
  • expanding business operations
  • entering or modifying contracts and agreements with unions, vendors, licensees or others and,
  • retention of and payment of fees and expenses to attorneys and other professionals.

Creditors Support or Oppose

Creditors, shareholders, and any other parties that hold an interest in the company have the option of either supporting or opposing actions requiring bankruptcy court approval. And the bankruptcy court must consider input from creditors, shareholders, and all other parties with an interest when deciding on how to proceed with the bankruptcy.

Unsecured Debt is not associated with a specific piece of property, which means that there is not specific property that serves as collateral for the debt. Unsecured creditors are able to participate in a Chapter 11 case through a committee that is appointed to represent all of the unsecured creditor’s interests.

Chapter 11 Reorganization Plan

A debtor typically has four months after filing Chapter 11 to propose a reorganization plan. These four months are usually considered exclusive, meaning that the debtor has the exclusive right to come up with the plan. This plan can also be extended or shortened.

After that “exclusivity period” expires, the creditors’ committee is able to propose a reorganization plan, although this is rare. Typically if creditors are dissatisfied with the debtor’s proposed plan, it will move to dismiss or convert the case to Chapter 7.

Confirmation of Chapter 11 Plan

Once a plan is approved it is referred to as “confirmation.” For a Chapter 11 plan to be confirmed, the plan must meet a number of requirements, including:

Feasibility. The proposed plan must be likely to succeed.  This means that a debtor must be able to prove to the court that it will be able to raise enough revenue to cover its expenses over the plan term. This includes making all payments to creditors.

Good Faith. The plan must be proposed in good faith and not by means forbidden under applicable law.

Best Interests of Creditors. The plan must be in the best interests of its creditors.  This means that creditors will receive as much in Chapter 11 as they would have if the debtor had gone through Chapter 7. Sometimes this means that a debtor will be required to pay creditors in full rather than just a fraction of what is owed.

Fair and Equitable. The plan must be deemed “fair and equitable” under the “fair and equitable” test. This means the following must be met:

  • Secured creditors (creditors that have a mortgage against real property or a lien against personal property included inventory or equipment) must be paid, over time, at least the value of their collateral.
  • The debtor is not able to retain anything on account of their equity interests unless all debts are paid in full. These debts can either be paid immediately following the confirmation of the plan, or over time. If paid over time, interest must be included. The bankruptcy court is able to allow equity holders (creditors) to retain ownership interests in the debtor in exchange for any “new money” that is contributed to pay expenses associated with reorganization of the debt. If this is not enabled by the court, equity holders lose all ownership rights once the reorganization plan is confirmed.

Some of the confirmation requirements apply only if the creditors vote against the proposed reorganization plan.

Working with a Bankruptcy Attorney

Bankruptcy can be an overwhelming process. That’s why we advise that you work with a phoenix chapter 11 bankruptcy lawyer that is familiar with various debt repayment options. We are committed to helping our clients understand their rights and options under the bankruptcy law and developing the debt relief solution that makes the most sense for each individual. We invite you to call (602) 648-3274 or contact our Arizona office to schedule a free initial consultation.

AZBK Lawyers 668 N. 44th St., Ste 320, Phoenix, AZ 85008 (602) 648-3274

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