Unfortunately, all too often I come across people who fear that admitting they’ve gotten in way too deep financially means that it somehow makes them a “bad” person. Let’s get that cleared up right now: going financially bankrupt does not mean you go morally bankrupt as well. The whole bankruptcy process was created to help both consumers and creditors when consumers are no longer able to keep up both with their costs of living and payments on their debt. It’s definitely a vast improvement over the old days when workers struggling but unable to stay on top of their bills were thrown into debtors’ prison!
People who are morally bankrupt are that way whether they file bankruptcy or not, for example, Seattle-based commercial developer, Michael Mastro, Sr., has been accused of moving his $15 million home, jewelry, and Rolls Royce into a trust to defraud creditors. A complaint filed against Mastro in federal court alleges that Mastro transferred these assets into limited liability companies under the ownership of an off-shore trust.
The suit, filed by bankruptcy trustee James Rigby, claims that the transactions (made over the two years prior to Mastro being forced into bankruptcy) were “made to hinder, delay, and defraud Mastro’s creditors. The case is now open before the U.S. Bankruptcy Court in the Western District of Washington. Mastro’s wife and related limited liability companies are also named as parties in the complaint.
In 2008, Mastro entered into an agreement with the Compass Trust Company, which states: “This trust is not intended to defeat the interest of any lenders informally known as friends and family…” viewed by most as referring to the multiple private investors who have loaned money to Mastro over a matter of years. The agreement also states that its purpose is to “…assure that the assets of this trust are available first for the lifetime use of Michael R. Mastro and Linda A. Mastro and other assets outside of this trust are utilized first to satisfy any outstanding obligations owed to ‘Friends and Family.'” Those two statements appear rather contradictory upon closer inspection.
The lawsuit seeks to prevent the third parties who control Mastro’s LLCs from control over the assets while a judge rules on the complaint. Mastro owes more than $500 in debt to dozens of Puget Sound area banks, as well as individual investors. The filing of bankruptcy does not create moral bankruptcy.