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Can “Dance Mom” Star Dance Her Way Out of Bankruptcy Fraud?: Bankruptcy Fraud Basics

By Daniel Hart, Paralegal  and Salene Mazur Kraemer, Esquire.

In October 2015, every Pittsburgh local news outlet and national entertainment magazine reported on the bankruptcy fraud story of Abby Lee Miller.  We have previously written here about her Chapter 11 Case:  “Dance Mom” Instructor Abby Lee Miller Files for Chapter 11 Protection: Public Disclosure of Private Facts:   Abby is the controversial star of the reality television show, “Dance Moms”.  Her often abrasive personality is in contrast to the glitter of dance and beauty of her young dancers.  She is quick to throw scathing insults at any of the children and their sometimes overly zealous Dance mothers.

Abby Lee filed for Chapter 11 bankruptcy in 2010, in Bankruptcy Court here in Pittsburgh.  After some television surfing by a local bankruptcy judge and a subsequent investigation by local authorities, Abby may have committed bankruptcy fraud.

What is bankruptcy fraud?  It is a white-collar crime that generally has taken four general forms:

  1. Debtors conceal assets to avoid having to forfeit them;
  2. Individuals intentionally file false or incomplete forms (underreporting income, overstating liabilities);
  3. Individuals file multiple times using false information or real information in several states;
  4. Debtors bribe a court-appointed trustee.

Nearly 70% of all bankruptcy fraud involves the first form, the concealment of assets.  At the 341 meeting of creditors in each bankruptcy case, a debtor is required to testify under oath as to the accuracy of his or her bankruptcy petition and schedules.  A bankruptcy trustee appointed by the United States Department of Justice probes each debtor about the facts and circumstances surrounding each case.

A bankruptcy trustee can only liquidate unexempt assets that are a part of the debtor’s “bankruptcy estate”.  If the asset is not listed on the debtor’s schedules or the debtor does not reveal the asset, it can fly under the radar.

I tell each of my bankruptcy clients always to “tell the truth, reveal everything, err on the side of caution.”  “You don’t want to end up in jail over this filing.”

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The effects of bankruptcy fraud are often passed on to businesses, financial institutions, and the general consumer in the form of higher interest rates, greater loan fees, and higher taxes.

Bankruptcy fraud is a criminal offense.  When a bankruptcy trustee suspects fraud but does not have enough evidence, he/she can compel testimony and document production from just about anyone through a Bankruptcy Rule 2004 examination.  If fraud is suspected, the trustee refers the case to the Federal Bureau of Investigation (FBI).  The agency will undergo its own investigation.  A debtor guilty of bankruptcy fraud faces stiff penalties as outlined at 18 U.S.C. §152 which can result in a fine up to $250,000 for each count of fraud, or up to a five-year prison sentence, or both.

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  A  federal grand jury indicted Abby Miller on 20 counts of bankruptcy fraud, alleging she concealed about $755,000 in assets and made false bankruptcy declarations.  Federal Bankruptcy Judge Thomas Agresti nearly approve Miller’s Chapter 11 reorganization plan but then he was channel surfing one night and saw commercials for the new season of “Dance Moms”.  Miller claimed in her bankruptcy reorganization plan that she did not have a signed contract for a new season and that her income from the show was “volatile.”

It is alleged that Abby did in fact, have a signed contract and steady income.  During the past three years while the the bankruptcy proceeding was pending, as required by the Department of Justice for all debtors, Miller was required to deposit her income into a special DIP (Debtor in Possession) account and report that income to the court on a monthly basis.  Instead, it is alleged that she set up other bank accounts and funneled her income from the TV show and other ventures into those accounts.

If found guilty, Abby Lee faces up to five years in prison, not to mention outrageous fines given 20 counts.  The surprising twist in this case is that Abby’s bankruptcy plan, we believe, provided for a 100% payout to unsecured creditors (a rarity); it appears that she would have had no need to hide assets; she was obligated to pay unsecured creditors 100% anyway!  We shall see!

Sources: http://triblive.com/news/adminpage/9263325-74/bankruptcy-miller-prosecutors#axzz3psRPmrWl

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“Dance Moms” Instructor Abby Lee Miller Files for Chapter 11 Protection: Public Disclosure of Private Facts

By: Justin A. Saporito, MAZURKRAEMER Law Clerk and Salene Mazur Kraemer

Salene’s Preface: I was in Bankruptcy Court last week in Pittsburgh and noticed Abby walking into Court.  (She is a stunning woman by the way and you can understand why she is on TV).  I had to ask myself, “How do I know her?”  I did figure it out pretty quickly.   I was surprised to see her on my turf (that is in the world of commercial bankruptcy) and was not aware that Abby had filed for Ch. 11.  My daughter is a dancer and I watch the show! 

Abigale Lee Miller filed for Chapter 11 relief on January 3rd, 2011.  The petition was filed in the United States Bankruptcy Court for the Western District of Pennsylvania under petition number: 10-28606 TPA and has been overseen by the Honorable Judge Thomas P. Agresti.

Debtor is better known as Abby Lee Miller, the host and instructor for the popular Lifetime reality television show Dance Moms.  The show follows a group mothers and their young daughters who are participating in the world of young competitive dance.  The show takes place in Pittsburgh, PA at the debtor’s studio, the Abby Lee Dance Company, and follows the ladies as they travel across the country to various competitions.  Dance Moms is currently holding open casting calls for its 4th season.

dance-moms-banner-85373The Abby Lee Dance Company was formed 27 years ago as a not-for-profit organization and is an audition only program.  It is located at 7123 Saltsburg Road, Pittsburgh, PA, 15235.  Debtor is also the owner of Reign Dance Productions, which shares the building with The Abby Lee Dance Company.

Debtor has declared approximately $325,500 in assets with approximately $356,500 in liabilities.   Thirty-four creditors are listed in the petition, with Chase Mortgage holding the largest unsecured claim in the amount of $50,000.   This debt is the unsecured portion of what appears to be a $200,000 undersecured mortgage on a home of Ms. Miller’s in Florida valued at $150k.   Ms. Miller’s dance studio has a $96,000 mortgage on it; the studio is valued at around $150,000  Ms. Miller owes about $27,000 in back taxes (which are unsecured priority claims).  Her unsecured debt only totals $32,000, many of whom are vendors for her business.

The Second Amended Disclosure Statement was approved on January 18th, 2013 and the Order Approving Disclosure Statement and Scheduling Hearing on Plan Confirmation was entered into on October 21st, 2013.  Please click here to for a copy of the order.  The debtor is represented by Donald R. Calaiaro of Calaiaro & Corbett, P.C.  The Confirmation Hearing to approve her Plan of Reorganization is set for December 12, 2013 at 1:30 p.m. EST.  Please click here for a copy of the Disclosure Statement.  A summary of the Chapter 11 plan can be found here.

Salene’s comment:   We purposefully do not often write blog posts about individual Chapter 11 cases (usually filed by very wealth individuals.  Most folks file a Chapter 7 or Chapter 13).  When a company or person files for bankruptcy,  I warn my clients that you are subjecting yourselves to a “financial autopsy”; you are making a public filing of all of your assets and liabilities.  So, information seekers can look up what your home is worth, what kind of car you drive,  how much credit card debt you have, whether you own a fur coat, how much your wedding ring costs, and whether you have any money in an IRA/401k.  Anyone can see how much money you have made in the last three years and they get to read what your monthly budget is for expenses.   While there are certainly benefits to the privilege of filing for bankruptcy, public disclosure of private facts is certainly one of the drawbacks.