Going to Plan B: Pre-Bankruptcy Planning

Like many of you, as an "old school" businessperson, I was always taught to pay my debts. I did not respect, and neither did you, the efforts of those who sought to dodge their obligations to us. However, in this unique and unsettling economic climate, bankruptcy is becoming a tool of economic necessity, not just for the family that ran up credit card debt or bought a home they could not afford, but for the otherwise honest businessperson who finds himself squeezed and surrounded by creditors because his clientele cannot, or are not, paying him.

The small to mid-sized business, frequently owned by a family or a small number of business partners, who have personally guaranteed business debts, may be compelled to seek "discharge" from those debts. In other words, you and your partners/family members would no longer be legally required to pay those debts. This discharge is a permanent order granted by a bankruptcy trustee (a local attorney knowledgeable in the practice of bankruptcy) appointed by the federal bankruptcy court, which prohibits creditors of the debtor from taking collection action in the courts while prohibiting these creditors from engaging in annoying and harassing communications with the debtor (or his family), in the form of telephone calls to spouses and family members, letters and personal contacts.

In fact, once a party has filed for bankruptcy, it is a violation of the Fair Debt Act to contact the debtor, who has provided the bank or credit card company with their bankruptcy case number to contact that debtor again. Debtors should have a worksheet on hand to report who called them and when to verify a violation of the Act. In return, a mistreated debtor, who frequently has a family member the subject of the telephonic abuse, can seek damages and attorney’s fees with documentation.

What debts can one seek relief from? The better question is what cannot be discharged. For public policy reasons, back taxes and tax claims, child support, and student loans are the most typical non-dischargeable debts. Otherwise, a studied approach on whether debts are “unsecured” (credit card for example) or “secured” (by some form of collateral) are listed on a variety of forms which accompany the debtor’s petition (application) filed in local federal district court.

Debtors are typically surprised to find they are not going to lose their household furnishings, jewelry and other personal property. Moreover, they learn that they can "reaffirm" debts on homes and vehicles, as long as they are not too far behind in payments, and effectively renegotiate those loans.

While few savor the avenue of bankruptcy with its negative implications, if your survival and the best interests of your family are at stake, prudent northeast Indiana business persons may need to be mindful of this option and start planning now! The least devastating bankruptcies are those in which a business sees the handwriting on the wall and begins in advance the planning process. This is not, of course, an effort to engage in fraud. Checks and balances are in effect to prevent such actions. However, just as you engaged in the planning of your business, you need to plan on an orderly means of dissolving it so you can resume business one day. Pre-bankruptcy planning is the key!