Bankruptcy Blues or Bankruptcy Rainbows

Dateline: August 30, 2006

Kid: Hi Homer!

Homer: Hi Kid.

Kid: Homer, I hear Billionaires like Donald Trump, Ross Perot and a whole lot of others have used a bankruptcy, or several for that matter to get ahead. How is that possible when Dick and Jane down the street filed bankruptcy and they ended up robbing motels, grocery stores and anything and anyone to get ahead because they could not borrow a dime, get a car, or mortgage a house? Can you explain how it is possible for one and not the other to use bankruptcy successfully?

Homer: Wasn't that a movie Kid? Forget it. Are you planning on doing this yourself, I mean filing bankruptcy?

Kid: Well, we may have to Homer. Since I always do the opposite of what you tell me, it seems I am destined to end up paying the piper. This time Sarah and I may have hit rock bottom. I'm really skittish about getting into the federal bankruptcy court system and having to carry all the baggage. I hear the embarrassment is just unreal that goes with it. You know the "Oh, you filed bankruptcy?" or the "I saw your name on the Internet and you declared bankruptcy didn't you?" All that possibility just nauseates me no end to think of what people might say and whether I can ever work again with the stigma generated.

Homer: What do you care what they say? And as for stigma, an employer cannot deny you a job because you file bankruptcy. It is one thing to file and quite another to follow it through. An awful lot of people don't know the difference and it is a clear and unmistakable invasion of privacy for some one to use the public records to keep you from a job when you have committed no crime. Can you imagine someone saying that to Donald Trump? They're not walking in your shoes.

OK Kid, I can see you are in a muddle over this and the last thing I want you to do is something stupid. I assume your creditors are hounding you to death night and day, right?

Kid: Uh huh.

Homer: And it is driving Sarah crazy?

Kid: Uh huh.

Homer: And you do not know exactly what to do, but you read bankruptcy can spare you a lot of pain?

Kid: Uh huh.

Homer: What you have got to get hold of is that bankruptcy is no embarrassment. It's a viable tool for financial survival. Regardless of what anybody says, it can and will help you. The bankruptcy laws were written initially by a caring Congress from bygone years, if you can imagine that, who knew that companies and creditors were beating the public to death with debt, literally. They can work themselves up into a feeding frenzy and they are not kind to people they perceive are falling behind. They will do whatever it takes to get money from folks who don't have it and they relentlessly pursue them even though they are, in fact, the ones responsible for the debt in the first place.

Kid: What do you mean by that?

Homer: Have you not always been encouraged to spend and do more on tomorrow's income? Everybody is Kid. That's the nature of a consumer driven economy from the mind of the credit card companies and lenders.

Kid: Come to think of it, I get a new credit card offer ever week and the mortgage guys are unrelenting trying to get me to refinance my house so I can borrow more and have more money.

Homer: By the banks giving you easy credit, permitting people to purchase houses and cars over their heads and grown-up toys like boats and second homes, finds people with debt they can not afford nor can they make payments on easily. Now, should you happen to make the minimal payments each month, the creditors will raise your credit limit without ever checking to see if you can afford it.

What unbelievable stupid logic. In effect Kid, you and millions upon millions of others become credit junkies, addicted to spending what you don't have and spending more and more of it. People find themselves living to the maximum of their incomes plus. The "plus" is what does one in every time. What you have to do is knock off the buying frenzy and find a way out of what is essentially credit jail.

Now there are a lot of so-called experts that tell you that filing a bankruptcy is the last thing you want to do. Well, it is for them. As soon as you file, you do not need their services anymore. Most of them just want to put their hands in your pockets but you close the gate when you file bankruptcy and they come up empty. Who are these guys? Credit counselors and so-called non-profit organizations that are anything but non-profit even though they say they are. They take it out in fat salaries and bury the profits in expenses. The new bankruptcy laws enacted this year demand that you must see one of the court approved counseling firms before your bankruptcy will even be considered. But, don't despair, you can get past this, and if at first you don't succeed, you can try, try, again until you do.

The down and dirty way to file a bankruptcy is to file in what is referred to as pro se. This means you and Sarah act as your own lawyers. Even the trustees of the Federal Bankruptcy Court will tell you to get a lawyer even though the law was written so that you could file on your own. Again, I find it a kind of a self-serving thing for the legal profession to take care of one another. What's incredible is that filing fees and legal fees can be paid over time. There is no end to this buy now, pay later, mentality.But, let me go back to your question about a guy like Trump, or some other allegedly super-wealthy person who may file bankruptcy. Why would they do it? Why would they even consider it? And, does not the stigma of bankruptcy haunt them too?

You have to understand they are not filing bankruptcy the way you think of it. They are doing it to save their businesses and reorganize and will use the bankruptcy laws to do it. And what about the so-called stigma? For the biz types there is none, or at least they don't consider that there is much of one. They look upon bankruptcy proceedings as a prudent business decision. It’s an economic strategy Kid and it works - it works very well. What they see is freedom from debt not stigma. What they see is a way to carry on, to build, grow, and keep on going.

Once under the protection of the Federal Bankruptcy Court, an individual, a family, or a business, is free from debt servicing and that means they don't have to pay on any claimed debt until the Federal Court decides when and how much. This gives them freedom from the banks and creditors hounding them night and day and freedom from government agencies like the IRS and others who will not take their foot off anyone, not even the Trump's of this world, except when ordered by a higher authority. In this case the Bankruptcy Court is that authority.Bankruptcy, even the threat of bankruptcy, whether you're the biggest company in the world, a startup entrepreneur, or an individual like yourself Kid, will stop any creditor, including the IRS, dead in their tracks.

Before you go down this road you should consider two other things. Can you restructure your debt and if so, renegotiate your payments with your creditors? If you can, then try. The reason I suggest you negotiate first with your creditors is that they are often willing to take a half, a third, a quarter and even less a loaf if they can keep you from filing bankruptcy. Some money from you in their eyes is better than nothing, right? What you have to do is be cool and when they say they will sue, you let them know you are holding off filing personal bankruptcy to permit you to negotiate with them a workable solution. The workable solution in your mind is X dollars per month, per couple of months, etc. You will find that virtually 100% of the time they will work with you. They absolutely do not want you to file bankruptcy.

Also you want to consider this Kid. You can file and not follow through. I suggest this tactic only if you have a business to protect. Murphy’s Law always plays out here. A new venture, like anything else, always seems to take longer than we think to get off the ground. It exhausts resources, and time and effort are chewed up to get the new enterprise off the ground and running successfully. One can keep the creditors at bay for a little longer and avoid folding the business and continue building it by filing for bankruptcy. However, once you file you can cancel it at any time.

The good news is it may take months for your creditors to find out and as far as the Federal Bankruptcy Court is concerned, it is as if you never filed at all. So guess what?

Kid: What?

Homer: You can do it over, and over again.

Kid: No way! You're kidding right?

Homer: When you withdraw or let the bankruptcy file lapse because you did not follow through with credit counseling or did not show up for a meeting with the trustee, you can start the process over again. The whole process, at least in the mind of the Bankruptcy Court, is as though you never filed at all.

Now this may make your creditors madder than a disturbed hornets nest but if you have not worked out of your situation and you need more time, you can file again.

Kid: Wow!

Homer: Yep, it’s a wow - the bankruptcy rainbow. Remember for businesses, it’s an economic strategy. You 'trump' the creditors.If you decide to go ahead Kid, and find the chapter that suits you and file under it. You can start off with Chapter 13, which is the only one that requires a debt reconciliation plan for individual filers, or you can go straight to Chapter 7. This Chapter permits you to file and declare unlimited debt for any amount against any creditor including the IRS. Chapters 10 and 11 are special and suited for more specific goals than just the individual debtor. Either way, they all accomplish the same thing, stopping creditors.

Kid: Which one should I look at Homer?

Homer: If you were really serious Kid, I would buy, beg, or borrow a copy of Guerilla Entrepreneurship: The Original, How to Start & Succeed in a New Venture. It's coming out in late September and it has a chapter specifically devoted to how any entrepreneur can use Bankruptcy as a strategy to save their business and grow, just like the big guys.

Kid: Tell me more!

Homer: Nope. Read the book. And by the way, about Dick and Jane --

Kid: Yeah--

Homer: If I remember correctly, we don't have neighbors down the street named Dick and Jane, do we? It was a movie if I recall, and they did just fine in the end - they never filed.

Kid: You got me!