Harsh & Public Punishments for Bankruptcy Crimes are Still in Fashion

 

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An ancient venue for meting out harsh punishments (photo by Marilyn Swanson)

By: Donald L Swanson

“And yet, despite the failure of the English experiment with harsh penalties, the desire to punish debtors has remained a part of the culture of bankruptcy to this day.”

From Prof. Emily Kadens in “The Last Bankrupt Hanged.”

The latest installment of harsh and publicly-visible punishments for bankruptcy crimes involves a minor, pop-culture celebrity.

A former “Dance Moms” television star, Abigale (aka Abby) Lee Miller, reported to Federal prison on Wednesday, July 13, 2017, to begin serving her one-year and one-day sentence for bankruptcy crimes. She also paid a $40,000 fine and $200 assessments that were part of her criminal sentence.

What did she do in her bankruptcy? She got a Chapter 11 plan confirmed in 2013 that pays 100% on all creditor claims. Specifically, her confirmed plan provides that:

–all tax claims (totaling $44,489.46) would be paid in full, in lump sum, at plan confirmation [she paid these claims back in 2013];

–all general unsecured claims (totaling approximately $43,159.89) would be paid in full, in lump sum, at plan confirmation [she paid these claims back in 2013];

–a timeshare interest would be surrendered to the secured creditor [this surrender occurred back in 2013, and no unsecured deficiency claim has ever been filed];

–two creditors with liens on real property would be paid in full, with interest, over time [these claims are being paid – at least until she reported to prison]; and

–a creditor with a lien on personal property would be paid in full, with interest, over time [this claim is being paid – at least until she reported to prison].

She gets prison time with this? Darn tootin’ !!

The Crimes

Ms. Miller plead guilty to committing two crimes: (i) concealing bankruptcy assets, and (ii) failing to disclose that she brought $120,000 cash [her own money] into the U.S.

She Got Caught

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Under-arena chambers (photo by Marilyn Swanson)

Back in late-2012, Ms. Miller has an “Amended Chapter 11 Plan of Reorganization” ready to be confirmed. The presiding Bankruptcy Judge, however, cancels the confirmation hearing because he “was channel-surfing one night and came across Miller’s national TV shows”; whereupon, he “realized she had more money than she was revealing in Chapter 11 filings.” Federal investigations followed, and “the U.S. Attorney’s office indicted her on charges of trying to hide about $755,000.”  [From the Pittsburgh Post-Gazette.]

[Editorial Note: If Ms. Miller actually had $755,000 squirreled away somewhere, she could’ve cashed-out every one of her creditors in one fell swoop—and still had hundreds of thousands of dollars left over.]

Second Amended Plan

As a result of getting caught, Ms. Miller files a Second Amended Plan, which the Bankruptcy Judge confirms. According to her “Forensic Accounting Report,” this Second Amended Plan differs from the prior plan like this: (i) a parcel of real estate would be retained and its lien paid over time, instead of being surrendered to the secured creditor, and (ii) tax and general unsecured claims would be paid upon confirmation, rather than at a later time.

Such changes aren’t huge. And they certainly don’t suggest a pre-caught effort by Ms. Miller to cheat her creditors.

IRS Issues Resolved

Meanwhile, Ms. Miller’s Federal tax return problems come to light.

She had not filed Federal income tax returns for the years 2002, 2004, 2007, 2008 and 2009. So the IRS files a proof of claim in her bankruptcy for estimated income taxes, penalties and interest from those years totaling $244,680.69. The IRS also files a Motion to dismiss the bankruptcy because of such filing delinquencies.

So, Ms. Miller files all her income tax returns.

Then the IRS withdraws its Motion to dismiss the bankruptcy and files an amended proof of claim in the total amount of $463.60 [yes, that amount is < $500] for all unpaid taxes, penalties and interest.

It looks like her tax problems with the IRS are resolved.

The Prison Sentence is Excessive

I understand prison for theft and other crimes where innocent people are wrongfully deprived of their money, especially when the debtor can never hope to repay any significant portion of the fraudulently-obtained assets.

But when the debtor’s future earnings might be used to repay creditors, why impair such prospects with prison time? What’s going to happen over the next year, for example, to Ms. Miller’s secured creditors, who are to be repaid over time? Can she still make the required payments while in prison—or after she gets out?

But even more significant, for Ms. Miller, is that she didn’t actually cheat anyone out of anything.

Prison time is too harsh and severe in such circumstances. It’s excessive.

–Minor Celebrity

A significant problem for Ms. Miller on sentencing day, it seems, is that she’s a minor celebrity. While pronouncing sentence, the Judge emphasizes Ms. Miller’s celebrity and connects the celebrity to her misdeeds:

–“Somehow you got caught up in this world of fame and got sidetracked . . . and you lost your moral compass.” [From the Pittsburgh Post-Gazette.]

And Ms. Miller’s celebrity assures publicity for her imprisonment.

So . . . the harsh and publicly-visible punishment meted out to Ms. Miller is, it seems, intended to both, (i) punish her, and (ii) scare other would-be bankruptcy fraudsters straight.

This intention is similar to the idea behind the public execution detailed in “The Last Bankrupt Hanged” [see link above].

The Prison Sentence is Improvident

And now, the U.S. taxpayers get the honor of providing Ms. Miller with all-inclusive accommodations for 366 days (or for however long she’s actually in prison). She’ll get housing, food, clothing, medical care, etc. – all at taxpayer expense.

–Perhaps the $40,000 fine is intended to cover some of the costs of housing and caring for her?

Prison time should be reserved for people who try to cheat innocent people and who do actual harm to others.

–Ms. Miller didn’t steal anything from anyone.  Nor did she try to create injury.  In fact, she did but little harm to anyone.

–And as for the $120,000 cash she didn’t report – it’s still her money. It’s not like she stole it from somebody.

Prison time for bankruptcy crimes should not go to someone whose bankruptcy reorganization is used to repay debts in full.

What should Ms. Miller’s sentence have been? I don’t know. But probation and fines and some additional creative approaches (e.g., community service or faster payment on secured claims) would seem more in line with what she did.

Conclusion

The Abigale Lee Miller prison sentence for bankruptcy crimes is one more proof that today’s culture still values harsh and publicly-visible penalties for bankruptcy crimes.

And that’s a shame.

 

Footnote: Abigale Miller’s Chapter 11 bankruptcy case is Case No. 10-28606 in the U.S. Bankruptcy Court for the Western District of Pennsylvania. Her criminal cases are Case Nos. 15-212 and 16-132 in the U.S. District Court for the Western District of Pennsylvania.

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