Let’s assume the following about Arrested Development:
Everything from the beginning of the pilot episode till the main act break, when the SEC raids the Bluths’ boat party and arrests George Sr., actually happened.
From there, George Sr. is rightly convicted of treason (for aiding Saddam Hussein, as revealed in later episodes of the show) and receives a death sentence.
George Sr. is held prisoner in the awful conditions afforded to an enemy of the United States who is awaiting execution.
George Sr. is psychologically unprepared for this kind of horror, and suffers a mental breakdown.
From there the rest of Arrested Development is a fantasy George Sr. plays out in his mind fulltime, to avoid facing his own guilt and his own mortality.