We’ve been discussing here the case of Jennifer McKinney (aka MckMama) and Israel McKinney (dba Kieran’s Contracting) and their alleged fraud perpetrated on the bankruptcy court. Questions have been raised about the likelihood of the McKinneys facing criminal charges, despite a quiet resolution to their original bankruptcy filing (they have waived bankruptcy and can never have those debts discharged in bankruptcy in the future) and the related case filed by trustee Gene Doeling objecting to the discharge of their bankruptcy (resolved with the McKinneys paying $3,500, the value of some of the assets they failed to disclose, and therefore were non-exempt and could be used to pay creditors).

The bankruptcy of Todd Brunner, a Milwaukee area landlord, was thrown out by a judge earlier this year after it was discovered that he did not disclose all his assets. He had $19 million in debts, so not being able to ditch out of them in bankruptcy was probably pretty painful. (The IRS alone says he owes $400,000 to them, but since he hasn’t filed a tax return since 2008, who knows how much higher the real number could be.)

Brunner disclosed assets of $24 million in his bankruptcy, but it was reported at the time the bankruptcy was thrown out:

The judge chastised Brunner for failing to disclose all of his holdings and often disclosing assets only when questioned by creditors or the Trustees office. Among the assets Brunner is accused of not initially disclosing were three pieces of property in Oregon, a handful of properties in the Milwaukee area, firearms and heavy equipment, including a forklift, Schneider said.

The trustee who asked the judge to throw out the bankruptcy reportedly said:

“A core purpose of the bankruptcy code is to provide a fresh start for honest debtors,” wrote Debra Schneider, a staff attorney for the Trustee. “It is not a safe haven for fraud and deception.”

It is alleged that Brunner hadn’t provided accurate information even though the court ordered him to do so. The trustee specifically alleged that Brunner:

• Failed to disclose ownership of threes pieces of land in the state of Oregon.
• Has not filed income tax returns since 2008.
• Improperly transferred ownership of properties before filing for bankruptcy.
• Violated a court order that required Brunner to file a variety of financial records.

Regarding the likelihood of criminal charges, one Milwaukee attorney was quoted:

Allegations of fraud in a bankruptcy filing are routinely “referred to the U.S. attorney to look at whether or not there is bankruptcy fraud or criminal bankruptcy fraud aspects,” Kravit said. “My experience . . . is that it would be usual on a sworn lie involving a matter of importance that there would be a criminal referral.”

Brunner has not been charged with any crimes, but has been under investigation by the FBI. An affidavit by an FBI agent alleged a number of things, including:

• “Records from Park Bank also suggest that in preparation for and during the course of the bankruptcy proceedings, Brunner was concealing cash rent receipts”
• “Surveillance videos reflect that on numerous occasions, just prior to and during the bankruptcy proceedings, Shawn Brunner, accompanied by his mother, Sharon Brunner, accessed the safety deposit box” to put in or remove large amounts of currency

The FBI is also investigating the transfer or approximately 100 of Brunner’s properties to his son and to companies linked to Brunner.

So will Brunner be charged with any crimes related to his bankruptcy? No one knows, although the extensive investigation that has been done makes it more likely that charges may be filed.

And what about Jennifer and Israel McKinney? Will they be held to account for their alleged fraud on the bankruptcy court? Civilly, they have been held to account since their cannot ever have these debts discharged in bankruptcy. Criminally, it is unclear. The assets and income concealed by the McKinneys are small potatoes compared to other bankruptcy frauds that are criminally prosecuted.

We can always hope, however that the U. S. Attorney’s office sees merit in pursuing the McKinneys criminally because it sends a message to other average consumers that they can’t get away with crimes simply because the dollars aren’t in the millions.

The bankruptcy system in the United States relies on the honesty of debtors. The McKinneys were given a chance to fully disclose their financial situation to the court, and they did not. They almost got away with it.

Criminally prosecuting them could have an important deterrent effect on other would-be bankruptcy fraudsters. The McKinneys took a chance by lying to the bankruptcy court. If their only consequence is denial of the bankruptcy, then they are no worse off than before they filed bankruptcy. They need to feel the pain of a criminal prosecution so that their dishonest has a real live consequence to them. And the prosecution of Jennifer McKinney could send an important message to anyone else who might think of defrauding the bankruptcy court.