U.S. Trustee Program Prevails at Trial to Revoke $3.9M Discharge from Seattle Man Who Concealed Inheritance Rights and Business Interest

A Seattle man who concealed an inheritance and his interest in a business lost his bankruptcy discharge of more than $3.9 million after a trial victory by the Justice Department’s U.S. Trustee Program (USTP).

On October 20, the Bankruptcy Court for the Western District of Washington entered a judgment revoking Nevin Middleton’s chapter 7 bankruptcy discharge. As a result, Middleton remains liable for his debts, and creditors are free to pursue payment from him after the case is closed. 

“The bankruptcy discharge is the key to a fresh start, but debtors must be transparent about their financial affairs to receive it,” said USTP Director Stephen V. Falanga. “The USTP remains steadfast in its commitment to protect the integrity of the bankruptcy system from dishonest debtors.”

Middleton originally filed an individual chapter 11 reorganization case to resolve debts stemming from a failed custom home construction business, but the case was eventually converted to a chapter 7 liquidation. In April 2024, Middleton received his chapter 7 discharge of $3,967,997 in unsecured debt—most of it involving claims from creditors who had invested in his projects. 

Several months later, the court held an evidentiary hearing to resolve a dispute over Middleton’s claim to a homestead exemption on some of his real estate. There, Middleton disclosed for the first time that after filing for bankruptcy but before receiving his discharge, he had received two deposits totaling about $39,600 in distributions from his late father’s probate estate to a business bank account that Middleton controlled. But Middleton had failed to list his inheritance rights and his interest in the business in his bankruptcy schedules and statements. 

An investigation by the USTP’s Seattle office found that Middleton had instructed his sister, the executor of the probate estate, to direct the funds to a business account that the private trustee administering his bankruptcy case was unaware of. But at trial on the USTP’s complaint to revoke his discharge, Middleton changed his story and testified that the funds were loans from his sister. After weighing the evidence, however, the bankruptcy court entered judgment in the USTP’s favor, concluding that Middleton had obtained his discharge by fraud and that he had knowingly and fraudulently failed to report the funds to the chapter 7 trustee.

The USTP’s mission is to promote the integrity and efficiency of the bankruptcy system for the benefit of all stakeholders — debtors, creditors and the public. The USTP consists of 21 regions with 82 field offices nationwide and an Executive Office in Washington, D.C. Learn more about the USTP at www.justice.gov/ust. To report suspected bankruptcy fraud or abuse, please visit www.justice.gov/ust/report-suspected-bankruptcy-fraud.