I’ve done a lot of writing in this blog over the past few months about the fact that the bankruptcy system is a mechanism for offering individuals and business owners a new start. But when people exploit the court system by lying about their assets, they are cheating creditors out of their rights, and the bankruptcy system cannot work for everybody’s benefit. Therefore, when a person is caught defrauding the bankruptcy court, punishment can be quite harsh.
Just last week, former boy band producer Lou Pearlman was brought back from Indonesia to face U.S. federal bankruptcy charges. You may not recall the name, but Pearlman created two boy bands of whom you’ve probably heard: Backstreet Boys and ‘N Sync. Pearlman had been sued many times before and is even now facing charges in several states for running illegal investment schemes and laundering money. But the “straw that “broke the camel’s back” was that Pearlman, estimated to own a fortune exceeding $150 million, made false statements about his assets in bankruptcy court.
As a bankruptcy attorney in Indiana for the past almost twenty five years, I’ve spent many, many hours in bankruptcy courts representing tens of thousands of clients from Columbus, Bloomington, Anderson, and Indianapolis. I know that the bankruptcy system is there to provide a much-needed safety net for honest debtors who, very often due to forces beyond their control, cannot take financial care of themselves and their families without help. But for the system to continue to function, the facts of each situation must be fairly and completely stated, so that the interests of both the creditors and the debtors can be addressed by the court.
The FBI and the U.S. bankruptcy courts, in fact, are showing little patience for Lou Pearlman’s fraudulent omissions of detail fact about assets which could be used to satisfy his creditors. It’s possible that Pearlman may not only go to jail for his dishonesty, but have all his debts forever deemed non-dischargeable in bankruptcy.