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How to Lose Everything and Go to Jail

January 21, 2013

Ex-baseball player Lenny Dykstra was recently sentenced by a federal court for bankruptcy fraud. Dykstra, once a star player for the New York Mets and Philadelphia Phillies, was ordered confined for six months in federal prison, to pay $200,000 in restitution, and ordered to perform 500 hours of community service.

Dykstra, 49 years old, filed for Chapter 11 bankruptcy protection. He listed $50,000 in assets and $10 to $50 million in debts. His case was later converted to a Chapter 7 liquidation.

In June 2010, the Chapter 7 bankruptcy trustee charged that Dykstra had lied under oath, had improperly hidden and sold assets, and had repeatedly acted in a “fraudulent and deceitful manner” during his bankruptcy case. After an investigation, Dykstra was charged with embezzling from the bankruptcy estate by selling or destroying more than $400,000 worth of items from his $18.5 million mansion without permission of a bankruptcy trustee. Dykstra subsequently plead guilty to the charge.

Bankruptcy is not a time for concealing or avoiding the truth. It is a time for brutal honesty. The federal bankruptcy law allows the honest debtor a fresh start, an opportunity to begin again without the burdens of debt. The relief is very powerful and very real. Many successful people have used the federal bankruptcy laws in the past to make their lives better in the future.

On the other hand, dishonest debtors make their situations much worse. Along with his jail sentence, restitution, and community service, Dykstra faces a complete denial of discharge. He lost everything, went to jail, and may be stuck with all of his debts.

Dykstra’s story may be public and chaotic, but it is not that unusual. Some debtors try to use the bankruptcy system to shield assets from creditors while they hide property for their own benefit. Concealing assets and lying during your bankruptcy case is a federal crime that is investigated by the FBI and usually the IRS. The results of these investigations are sent to the Department of Justice and to the federal bankruptcy court judge. In other words, it is not a good idea to monkey around during bankruptcy!

When facing bankruptcy, discuss your situation honestly and completely with your attorney. Your experienced bankruptcy attorney will present options to protect your assets and discharge or reduce your debts in a legal way without risk of bankruptcy fraud.


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