Former MLB All-Star Charged with Bankruptcy Fraud

Former MLB All-Star Lenny Dykstra (Mets/Phillies 1985-1996) was recently charged with bankruptcy fraud for removing property from his $18 million mansion after he filed for bankruptcy protection in 2009. It is estimated that Dykstra removed $400,000 in items from the home, including a $50,000 granite sink. Dykstra has been charged with fraud because he removed, sold, or damaged the items without the permission of the bankruptcy trustee. http://www.bloomberg.com/news/2011-04-15/former-baseball-player-lenny-dykstra-charged-with-bankruptcy-fraud.html

While most of us don't have $50,000 granite sinks in our homes (or for that matter, $400,000 worth of furniture) Mr. Dykstra's case raises issues that should be in the minds of anyone who is filing a bankruptcy case. The Bankruptcy Code creates something called the "bankruptcy estate" whenever a bankruptcy case is filed. See 11 U.S.C. § 541. The estate generally consists of all of the debtor's interests in any kind of property, including homes, vehicles, and other personal property. Once an item is in the bankruptcy estate, it is given special protections that keep creditors from being able to take the item without first getting permission through the bankruptcy court. The problem that Dykstra ran into is that once something is property of the estate, the debtor cannot simply decide to sell, transfer or destroy the item. The debtor is also required to go through the bankruptcy court before taking these kinds of actions with property of the estate. Debtors who take these kinds of reckless or dishonest actions can face criminal charges, in addition to the fact that their bankruptcy cases will probably be dismissed. The lesson that most of us can learn from these cases is simple: once you have filed a bankruptcy, be very careful about what you do while the case is going on. If you have large transactions or decisions involving your property, make sure to run it through your attorney.