Oct 1, 2007

On Starting Over After a Bankruptcy

Years ago I owned a group of retail businesses, and I enjoyed some measure of financial success for part of the 1990s. Business conditions rapidly deteriorated, however, and I found myself in a swirling vortex of multi-million dollar debt.

To free myself and my family from the encumbrances of numerous personal guarantees and obligations to the corporation I founded, I had to file for personal bankruptcy. Prior to my own deteriorating business situation, I always considered those who filed bankruptcy to be persons of poor character. It took some hard lessons for me to realize that some people wind up in bankruptcy court for reasons other than trying to fleece their creditors.

In my complicated case, it would have taken me the income of twenty to thirty years to pay off the potential indebtedness I faced, especially on such items as real estate leases, equipment leases, and accounts payable that were assumed by the new owners of the business. There was no conceivable way that debt consolidation or debt management were an option, given $1 to $2 million in liabilities. While bankruptcy brought a considerable sense of relief, this also meant that I was now considered a bad credit risk for the first time in my life.

My wife and I avoided the temptation to open new credit card accounts, which is a tactic that some post-bankruptcy specialists recommend. Instead, we focused on saving as much money as possible to pay cash for items such as appliances, cars, and unexpected emergencies. Part of this was out of necessity, as creditors are a bit reluctant to extend credit to consumers with a bankruptcy on their records, but part of this was a desire to never find ourselves in the position where we were beholden to the whims of lenders.

The better part of a decade has since elapsed, and even though we have significantly less income than in some previous years, we have managed to increase our net worth to its highest level. We still shred those credit card offers that show up in the mail, recognizing them as little more than pathways to poverty. We buy used cars, shop at second-hand stores, clip coupons, and evaluate every purchase to determine if it would be a "need" or a "want."

I have found that the act of declaring bankruptcy offers much more than relief from creditors. If a person so chooses, bankruptcy can offer an opportunity to rethink one's true priorities. Many fools jump right back into the expensive game of credit slavery, but for other people the fresh start offered through Chapter 7 liquidation can open up possible ways of living simply that they previously could only imagine.


JQ said...

Who needs all the foofaraw of modern society anyway? We don't need anything except basic essentials; clothing, food, shelter. Occasionally we will eat out and too often eat in (that is our Achilles' Heel). We have slowly and surely turned our debt situation around and are getting closer to being able to eliminate all unnecessary credit cards and pay cash for everything. I am sorry about your bankruptcy but you're right, it gives you a better appreciation for money management.

Barb said...

those were 2 chunks of wisdom!

Now, if you were ever ABLE to, would you pay off any of the old creditors? or is there no virtue to be gained by that.

I wouldn't feel guilty about having to default on the exorbitant interest of credit card companies -- but the principle --and other struggling companies --I would feel bad that they extended me credit and I became wealthy again and never paid them back because the law allowed it.

Not trying to be judgmental --but expressing how I would feel if I had to file for bankruptcy--and then later recouped my losses and left the creditors holding the bag.

historymike said...

Thanks for the kind words, JQ!

historymike said...

Hi Barb:

In my case, much of my debt was of a potential nature.

For example, I guaranteed leases for five locations. After I sold my business, I was still on the hook should the successor company decide they wanted to move a unit.

On four stores, I was potentially liable for 6-10 years worth of lease payments that averaged $1,500 per month. This represented over a half-million dollars in potential liability.

Add to this equipment leases and other obligations, and I was looking at almost $1 million in potential debts that could have been incurred after I got out of business.

So, on those "debts" I feel no compulsion whatsoever to repay. I learned the hard way that only suckers make personal guarantees, but I always approached my business with the idea that I wouyld be around forever.

I made every effort to pay off the small local vendors when I went out of business, but the utilities and a few multinationals ended up eating about $80-$100 grand in receivables. If I ever got wealthy, I would consider paying those debts, although I certainly got stuck with my share of write-offs as a business owner with significant assets in accounts receivable.

Barb said...

I understand what you're saying. You had your troubles in part because people didn't pay YOU.

Bankruptcy court is a good thing overall--a merciful arrangement. I'm glad you are are not under the load anymore.

I like your gentlemanly blog.

Hooda Thunkit said...

Told only as one who has lived through it could have...

(Don't ask.)

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Jaden Allred said...

Declaring bankruptcy is a really hard decision to make, and I can’t blame you for not doing it immediately. Besides, it’s not a good experience and I’m glad you finally got over it. With your good outlook in life, there’s no doubt that you can easily cope well with this.

Jaden Allred

Allan Morais said...

I know that you’ve gone through a lot after you went bankrupt, but it taught you so many lessons in life. These are constructive lessons that you can use in the future. Going through that incident was really tough, but you survived it. You started over and I know for sure that you’re doing great right now. :)