Lying to the Bankruptcy Court: What Can Happen

Bankruptcy Court Judge Robert Mayer nailed a guy named Jon Mays this past week.  I was in the bankruptcy court on something else, and I saw it.

There was excitement in the Alexandria bankruptcy court last Tuesday

Mays was in trouble with the Office of the United States Trustee. (The UST is part of the U.S. Justice Department, set up to watch over the bankruptcy system.) They claimed that Mays lied on his bankruptcy papers.

Here’s the story.

Mays filed Chapter 7 bankruptcy in May, 2011. His case was interesting right away, because of the amount of his debt. His paperwork showed $3.5 million in debts attached to real estate and car loans. Plus $1.2 million in business loans, personal loans, and credit cards.

Things got a lot more interesting on June 23, 2011, for his “Meeting of Creditors.” (Usually no creditors show up at the meeting of creditors, and the whole process takes less than three minutes.) There were fireworks on that day for Mr Mays. A lawyer for personal creditor (former girlfriend, I’ve been told) showed up and asked him about land and assets he had inherited from his mother.

Mays admitted under questioning that he had inherited some land from his mother, said sold it for about $150,000, gave some of the money to his children, lived on the rest, and filed bankruptcy when the money ran out.

That wasn’t all–when he filed his “corrected” papers, he admitted there had been over half a million dollars (!) he had gotten when his mother died. And he “forgot” to tell his lawyer about any of that.

Mays had burned through half a million dollars between May 2010 when his mother died, and May 2011 when he filed bankruptcy.

In February 2012, the United States Trustee asked Judge Mayer to deny Mr Mays’s discharge. They said there was no way he “forgot” about all that. It had to be obvious that he intentionally lied on his bankruptcy papers.

In April, Mays told the bankruptcy judge he needed more time to get a new lawyer to so he tell his side of the story. (Mays said he needed a new lawyer because the lawyer who had done his original bankruptcy papers could be called as a witness against him.)

Don't bury money in your backyard and lie to the bankruptcy court. You could go to jail.

The judge gave Mays three more months. In July, he still hadn’t gotten a new lawyer. He still hadn’t done anything else to tell his side, either. You had your chance, the judge told him, you’re out of luck.

How bad is this? The bankruptcy trustee is trying to chase down where that money went. The trustee will go after the family, friends and others he gave some of that money to, and get it back. One top of that, all the people he owed that four million dollars to can still come after him. It’s open season on Jon Mays with nowhere to hide.

(Of course, it could be worse. If Mays had hidden that money somewhere, not spent up, not given to family and friends, but buried in his back yard or sent to Switzerland–then he would be looking a jail time. There’s no talk about anything like that, fortunately.)

The lesson–start by telling the truth to your bankruptcy lawyer. This is an extreme case. But there are many people in financial trouble who should NOT set foot in the bankruptcy court. I’m sure if Mays had told the truth to his lawyer, she would have told him to stay away. He’d have been a lot better off.