Getting Away With Bankruptcy Fraud?

Dumb and Dumber

Bankruptcy Fraudsters Jennifer McKinney and Israel McKinney

For the last several months, we have been following the story of Jennifer “MckMama” McKinney and her bankruptcy filing from nearly a year ago. By spring, trustee Gene Doeling had her number, and was preparing to file a motion objecting to the bankruptcy. In not so many words, Mr. Doeling alleged fraud against Jennifer and Israel McKinney, saying things such as manipulated, destroyed, concealed, falsified, false, and intentionally.

In my first story on the MckMama bankruptcy, I detailed the lies and deception of Jennifer Howe Sauls McKinney, both to her blog readers and to the bankruptcy court. Why such a public discussion of this case? There are two reasons. First, bankruptcy itself is a public process. The documents are readily available on Pacer, the federal government’s online warehouse of court documents.

Bankruptcy is public because our government has decided that the public has a right to know. If debtors are going to be able to get out of paying their debts, it is in the public interest to know what those debts are so anyone owed money can seek out funds.  Making these cases public also tends to encourage compliance with the law. With the knowledge that the public may be looking at your bankruptcy, you are more likely to be truthful in your disclosures. The bankruptcy process relies in large part on truthful disclosures by the debtors, and public scrutiny of those disclosures will deter many debtors from lying during the process.

Second, MckMama has put her life on display for the world to see. She used her blog readers to earn a large income that was subsequently concealed in order to (hopefully!) have her debts wrongly discharged. She used her status as a public figure to increase her income, but then lied about that income in an attempt to deceive the bankruptcy court. Her readers deserve to know the truth.

The McKinneys’ bankruptcy has been denied, saddling them with these debts into infinity. And the judge just approved a settlement in the original case which has Jennifer McKinney paying $3,500 to the court for assets that were wrongfully concealed in the bankruptcy filing.

Some are suggesting that the McKinneys got away with fraud by virtue of this nominal settlement. In some ways, they are right. Many of the financial improprieties appear to have been ignored. As of today, there have been no criminal charges against Jennifer McKinney.

In some ways they are wrong. The McKinneys still have to pay their debts, and creditors can pursue them for a long time, garnishing pay and levying bank accounts to get their money. The taxing authorities (both federal and state) may very well be looking carefully at the McKinneys and preparing to extract a pound of flesh from them. (And that’s a pound that the Xyngular snake oil can’t do anything about!)

I was interested in reviewing the financial shenanigans that the McKinneys appear to have gotten away with in this bankruptcy filing. There are several instances of undisclosed income, prohibited sales of property, and other financial hijinks. I am going to walk us through a summary of these today. The bankruptcy settlement included nothing for the following items:

  • Undisclosed blog income – The McKs claimed income of $1,500 per month during a month in which the blog income was at least $7,711.
  • More undisclosed blog income – One bank deposit alone showed income of $3,497 the month prior to filing bankruptcy and claiming that their monthly income was $1,500. There were likely other deposits that increased the actual income.
  • Undisclosed income from affiliate programs – Jennifer lied about when she started the affiliate programs and when she was paid from them. This, too, increases her real income, which she did not disclose.
  • Undisclosed income and Paypal account(s) – Jenny earned $2,884 from two advertising programs in December, yet only disclosed $1,500 monthly income. There were likely other advertising revenues as well. And she failed to disclose her Paypal account(s) which had money in them at the time of the bankruptcy.
  • Undisclosed income from photography classes – In September, October, November, and December 2011, Jennifer McKinney collected thousands of dollars for photography classes. None of this income was disclosed in the bankruptcy.

There are other things that should have been disclosed in the filing (assets, sales of assets, gifts to family members, donations, etc.). While these appear to have a smaller impact on the financial outcome of the bankruptcy, the non-disclosure is still a violation of the bankruptcy law.

But the above bullet points are very serious, in my opinion. In the December 2011 bankruptcy filing, Jennifer and Israel McKinney disclosed that the 2011 income from Jennifer’s business was $55,000. They stated that her income would be $1,500 per month going forward. Trustee Gene Doeling discovered 2011 income totaling over $148,000, and this likely does not include all sources of income.

In the end, it didn’t seem to matter what the income was. The McKinneys can’t get out of paying the debts. However, it is troubling to say the least that the McKinneys don’t have to pay a larger price (either criminally, or to the bankruptcy court) for those lies.

Of course, all of the above does not even include the lies Jennifer McKinney told her readers, such as the one about having paid off their tax debts.

Jennifer McKinney is not to be trusted.

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3 Comments

  • CJ says:
    1 December 2012

    Thanks for covering this. I’m one of those who feels like Jennifer and Israel McKinney got away lightly (the court bought the excuse that Jennifer’s enemies set up fake Paypal accounts in her name… I mean, COME ON!). Who knows how many of their debtors will actually pursue the money owed to them, aside from the IRS. I would have loved to see an example made out of her but in the words of Gregory House (and others), “You can’t always get what you want.”

  • Tracy Coenen says:
    1 December 2012

    At this point, I think our best hope are the IRS and a bitch named Karma. :)

  • Darren Chaker says:
    29 December 2012

    Very well detailed blog post about BK fraud. Indeed the increase in filings and need to bring justice by sifting through the financial records is key and good to see the detail you take in your work as an expert.

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