Under federal law, a debtor may be criminally prosecuted for various kinds of misconduct in connection with a bankruptcy case, including concealing assets, falsifying information, embezzlement, or bribery.  See 18 U.S.C. §§ 152, 157.  The U.S. Trustee, which serves as a watchdog over the bankruptcy process, will refer such cases to the U.S. Attorney’s Office for investigation and prosecution.

Earlier this month, the U.S. Attorney’s Office for the Northern District of Illinois announced two major indictments for bankruptcy crimes.  The first indictment is against Lewis A. Lacey, a police officer for the Village of Dolton, Illinois.[1]  According to the indictment, from 1984 to 2019, Lacey filed bankruptcy seven times.  The indictment also alleges that in August 2019, Lacey filed chapter 13 in order to stay the enforcement of a settlement agreement.  During his chapter 13 case, the indictment alleges that Lacey concealed his assets from creditors by (i) lying on his schedules and statement of financial affairs, filed pursuant to section 521(a) of the U.S. Bankruptcy Code, and (ii) lying under oath at the meeting of creditors, held pursuant to section 341 of the Bankruptcy Code.

In January 2020, Lacey’s bankruptcy case was dismissed, but the indictment against Lacey states that he filed another chapter 13 in April 2020 in order to regain the benefits of the Bankruptcy Code’s automatic stay.  The indictment alleges that, in connection with the 2020 filing, Lacey again lied on his schedules and statement of financial affairs and again lied under oath at the meeting of creditors.  

In all, the indictment contains two counts of violating 28 U.S.C. § 152(1) (concealment of assets in connection with a bankruptcy), two counts of violating 28 U.S.C. § 152(2) (false oath in connection with a bankruptcy), three counts of violating 28 U.S.C. § 152(3) (perjury in connection with a bankruptcy), and two counts of violating 18 U.S.C. 1623(a) (perjury in a proceeding before or ancillary to a court of the United States).  Each of the nine counts is punishable by a maximum of five years in prison. 

The second indictment is against Keith Freeman, a senior administrator for the village of Dolton who commenced a chapter 7 in January 2024.[2]  This indictment contains allegations similar to the Lacey indictment.  For example, the indictment alleges that Freeman’s schedules and statement of financial affairs contained several materially false statements and omissions, and that Freeman lied under oath at a meeting of creditors.  The indictment further alleges that Freeman provided a phony tax return to the chapter 7 trustee.  The indictment contains one count against Freeman for the violation of 28 U.S.C. § 157 (filing of a document in a bankruptcy in order to execute or conceal a scheme to defraud).  This crime is also punishable by a maximum of five years in prison. 

These indictments have attracted a lot of media attention because both defendants are connected to the scandal-ridden mayor of Dolton, Tiffany Henyard.  Specifically, both Lacey and Freeman have been described as allies of Henyard, who has been accused of misusing taxpayer funds.[3]  Her actions have reportedly left the village of Dolton millions of dollars in debt. 

The indictments do not directly relate to Henyard’s alleged misconduct or village business, and attorneys for Lacey have asserted that the indictments are just a way for the U.S. Attorney’s Office to build a stronger criminal case against Henyard.  

Even if that is true, the U.S. Trustee does have a strong track record for taking bankruptcy crimes seriously.  In its most recent annual report, the U.S. Trustee’s office announced that it made over 4,000 criminal referrals nationwide during the 2022 and 2023 fiscal years.[4]  Many of these referrals include suspected violations of 28 U.S.C. § 152(1), (2), (3) as well as 28 U.S.C. § 157—the statutes that Lacey and Freeman are accused of violating.[5] 

During the 2022 and 2023 fiscal years, there were also 77 indictments, resulting in 17 prosecutions and 61 plea deals nationwide, and at least some of these cases resulted in lengthy prison sentences.  Even if the Lacey and Freeman indictments are a prelude for a more significant Henyard indictment, the U.S. Department of Justice takes bankruptcy crimes seriously in order to protect the integrity of the system.  Enforcement of the relevant laws is clearly robust.