Lenny Dykstra: A Cautionary Tale of Fraud and Fear

Debtors have options when their assets exceed exemptions. They can file chapter 11 or chapter 13 and make a stream of payments to buy back their property’s surplus equity. They can file chapter 7 and negotiate a buyback from the trustee, or else just release the assets outright. They can stay out of bankruptcy and plan for the day that they can legitimately claim a no-asset case. What they can’t do is refuse to list the assets to hide them from creditors.

Bankruptcy is a powerful device to allow honest debtors to shed their debt and enjoy a fresh start in life. The news is rampant about debtors who hide assets in their backyard, try to sell assets on ebay or, like Dykstra, secrete and sell valuables. Now discovered, Dykstra has plead guilty to bankruptcy fraud and will likely serve up to 51 months in federal prison.

What did Dykstra do? Prosecutors say he hid, sold or destroyed more than $400,000 worth of items without permission of the bankruptcy trustee. Court documents show Dykstra said he put an oven, sconces and chandeliers into a storage unit, but prosecutors said he actually sold the items for $8,500. He also hid baseball gloves, balls, bats and other memorabilia from the bankruptcy court and creditors and sold them last year for about $15,000. So, what did prosecutors prove? After a career of World Series glory and millions of dollars, Dykstra threw it all away for just over twenty thousand dollars.

Many debtors hide relatively minor assets from the trustee not so much out of greed, but more out of fear: fear of impoverishment, fear of losing their former elevated sense of themselves, fear of losing control. What they find is that the cost of this fear is usually far greater than the value of the assets they secretly keep.

Prosecution for bankruptcy fraud is rare, but losing a bankruptcy discharge is not.  Complete disclosure of assets and debts, income and expenses is the cornerstone of the bankruptcy world. As Lenny Dykstra has sadly learned, the meager profits of a fraudulent bankruptcy case rarely equal the complete relief enjoyed by the honest debtor.

Lenny is competing for the “World’s Greatest Celebrity Debtor” in March Madness: Bankruptcy Brackets.


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