Dr Phil's media company loses bankruptcy case, ordered to liquidate

A federal bankruptcy judge has ruled that Dr. Phil McGraw’s media company, Merit Street Media, cannot file for bankruptcy and must proceed under Chapter 7 liquidation.

Merit Street Media, which was launched last year as a joint venture between McGraw’s Peteski Productions and the Christian broadcaster Trinity Broadcasting Network (TBN), filed for Chapter 11 protection in July. In the filing, Merit Street alleged that TBN reneged on over $100 million in financial responsibilities.

Judge Scott Everett rejected the Chapter 11 filing, claiming that McGraw was “not being forthright” regarding his business dealings during the trial. The judge cited evidence in court that indicated McGraw had deleted incriminating text messages that said he would pay certain favored creditors over others to game the bankruptcy.

“Candor to the court is critical,” Everett said during the hearing, noting that the business “was as dead as a doornail when the bankruptcy was filed.”

Under the Chapter 7 conversion, a court-appointed trustee will oversee the sale of Merit Street’s remaining assets,  including its media library and content rights,  in order to satisfy creditors.

According to The Hollywood Reporter, a spokesperson for Peteski said, “We take great exception to the court’s improper assertions regarding the alleged destruction of evidence, which simply did not happen.”

“We will not let this stand given all that Dr. Phil and Peteski Productions have done to protect Merit Street employees, distributors and other interested parties and to resolve this unfortunate situation,” the spokesperson added.

Merit Street is facing bankruptcy court while also suing Trinity Broadcasting for breach of contract. After Merit Street initiated bankruptcy proceedings, Trinity Broadcasting countersued, and the resulting trial centered on the legitimacy of the company’s Chapter 11 filing. McGraw had conditioned a loan to Merit Street on the company winning its lawsuit against TBN. His production company, Peteski Productions, was also proposed as the debtor-in-possession during the reorganization attempt.

“This case is an anomaly,” Everett said, adding that McGraw planned to pay “favored creditors and not pay disfavored creditors, as his own texts show that he wanted to do.”