Bankruptcy

Should I File a Bankruptcy? Must I File a Bankruptcy? Do I Have to File a Bankruptcy? Will My Creditors Force Me Into Bankruptcy? What Is Involuntary?

By Joseph McDaniel, Esq.

Except your situation is not complex.

The fact that you are reading this post tells me that there is a bankruptcy in your future; we just don't know when and which Chapter (type) of bankruptcy.

Nobody contemplates a bankruptcy when things are good. Normally, a bankruptcy is the result of a cascade of events.

For instance, you've been married for twenty years, and you have accumulated a lot of credit card debt that was unimportant because you had five income properties with a lot of equity. By the definition of most folks, you were rich. You had great credit, all the toys you wanted, a beautiful pool, and several nifty cars. You used credit cards because they gave you beautiful teaser rates and low, low monthly payments.

Then something happened to your Jenga structure.

It doesn't really matter where it started, any more than it matters which piece of the Jenga tower made it fall down.

It may have been when the values of your various properties dropped like a souffle in a sonic boom.

It may have been when the credit card computers noticed that your real estate assets were now worth less than the debts, and they naturally increased your interest rates.

And that, in turn, made the monthly payments gigantic!

It may have been when all five of your tenants gave notice on the same day (hey, it's better to be lucky than smart, right?), and you stopped being able to make payments on the underlying mortgages.

And then your credit card interest rates went up, but by then, that was the least of your worries.

Or maybe you zigged when you should have zagged, and you thought some antideficiency statute protected you on one of your income properties, and then you were sued for a deficiency judgment, any your Arizona bankruptcy attorney told you that a little knowledge was a dangerous thing.

Heck, a lot of knowledge is a dangerous thing! Recall my earlier comment that it's better to be lucky than smart!

Or maybe you were sued by a tenant for a slip and fall, and then the real estate market collapsed, and then your interest rates skyrocketed, and then you lost your job, and your wife or husband filed a divorce, after you had burned through your 401(k) of $600,000 in a futile attempt to make payments to everybody in sight.

And that would be The Perfect Storm.

Now, the good news is that there is life after insolvency, and whether or not you get there the easy way or the hard way, life beats the alternatives in the same way that getting older beats the alternatives.

But being called by twenty credit card companies on a daily basis, and listening as they pass the account to collectors lower and lower on the food chain, until ultimately the collectors will say anything, because they're bottom feeding bad guys, is no fun.

Honest.

And watching as your investment properties fall over at trustee's sales or mortgage foreclosures, one by one by one, like dominoes, is much less fun that watching actual dominoes fall over, you know?

So what do you do?

Well, first you have to decide the game is over, and then you have to vacillate, because this is your first rodeo.

That leaves you with several bankruptcy and non-bankruptcy options.

You can do nothing whatsoever for an extended period of time; that is an option, but it could easily be the worst one.

You might think about a Chapter 13, but you're waaaaay over the debt limits at 11 USC 109.

How about negotiating with your creditors? Well, I talk about that a lot in this blog, but you're probably not used to doing that, and there may be tax consequences that are substantial, depending on how successful you were in your negotiations (sort of a good news, bad news problem).

How about a personal Chapter 11? Well, there's no equity to save, there's no business in your case to maintain, and the legal fees will keep me fat, happy and driving in an Escalade for years. And the statistical success rate of Chapter 11 cases is not promising. Really.

I'm going to cut to the chase. Your creditors are almost certainly not going to put you in an involuntary bankruptcy.

You are, ultimately, after you go through the four stages of grief while being picked apart economically by creditors, going to decide that a Chapter 7 Bankruptcy is the only alternative that will get you back out on the street, making money, and living like a human again.

Now, I'll discuss the multiple options at greater length, as I have previously in this blog, but this ain't my first rodeo, and I have gotten to watch the progression as the Jenga tower slooooooooowly falls over. With a certain amount of frequency. For thirty years.

And the good news is that my lawyer clients, and my doctor clients, and my dentist clients, and my waitress clients, and my ditchdigger clients all get to go through the car wash and come out mostly clean of debt, and start over with a nice, shiny fresh start.

And I like that!

And what will your bankruptcy cost?

Well, it's not priceless; it has a price. And I can't tell you yet because we haven't met and talked after you did your homework.

So do your homework, and then we'll talk, and we'll both find out if I can dry you off after your perfect storm.

NOTHING HERE CONSTITUTES LEGAL ADVICE RE A CHAPTER 7, CHAPTER 13, CHAPTER 11, OR CHAPTER 12. FIND AN ARIZONA BANKRUPTCY LAWYER WHO IS BOARD CERTIFIED IN BANKRUPTCY LAW, AV RATED, AVVO 10 RATED, ON SUPERLAWYERS, OR JUST VERY EXPERIENCED AND A FORMER CHAIR OF SOME BANKRUPTCY SECTION OR COMMITTEE. NOTHING HERE MAY BE USED AS LEGAL ADVICE IN CONNECTION WITH ANY BANKRUPTCY, WHETHER THAT BANKRUPTCY IS IN PHOENIX, GLENDALE, TEMPE, MESA, SCOTTSDALE, OR ANYWHERE ELSE.

Full post as published by Arizona Bankruptcy Attorney Blog on July 24, 2010 (boomark / email).