Thursday, August 13, 2009
The pros and pros of declaring bankruptcy
The idea of declaring bankruptcy has always seemed a bit shameful, something to be avoided at all costs. In these times, that attitude is archaic and foolish. Especially when you consider that some of our most prestigious companies have done it, not to mention luminaries like Donald Trump, Larry King, Toni Braxton, Francis Ford Coppola and any number of Jacksons. And not one of them had to sacrifice their lavish standard of living, status or credit rating for one minute.
Clearly, it’s time to get over the stigma. Bankruptcy is awesome. Once you know the specifics, you’ll wish you did it sooner. I know I do.
What makes bankruptcy particularly appealing right now is the fact that the courts are so clogged with cases (over 6,000 new ones a day), it’ll take years for yours to be processed by the courts. That means after you file the preliminary papers, all your debts will be frozen and no further payment will be required until the court date (which should occur no sooner than 2014 at the current rate). In the meantime, nobody can take legal action against you, evict you or charge interest and penalties. Sure, it may screw up your credit rating for awhile, but let's get serious: your credit rating is so screwed, bankruptcy may be a step up. The past part is, you get to live exactly as you have been, without the annoying monthly payments.
Let me compare the lifestyle of two people who have been unemployed for over a year. One has declared bankruptcy (who we’ll call Prince) and the other hasn’t (we’ll call him Pauper)
Pauper has been trying desperately to pay off credit card debt for years. Unable to deal with the threats of creditors and predators, he moved into his parents' laundry room so he wouldn’t have he added burden of paying for a place to live. Since then he has staunched the financial bleeding, but has also acquired a chipped tooth from the zipper on the pants he intercepted on their flight to the washing machine, a nervous tic, and stress induced eczema (diagnosed by Google). Despite no longer having to pay rent, he still struggles monthly to pay his minimum balance, which is mostly interest. The principle debt is not going down. Pauper hasn’t been on vacation for years. His last clothing purchase was a pair of $2.00 flip flops on sale at Old Navy. He avoids people, because it usually involves spending money on drinks and food and he doesn’t want to blow his monthly food budget on a cup of coffee and a scone.
Meanwhile, Prince filed bankruptcy six months ago when the incessant calls from creditors were making it impossible to enjoy his new $500 Blackberry. Prince is still living in his lovely home, purchased for $300,000, borrowed on at $850,000 and now worth $600,000. Well, actually Prince is currently vacationing at a spa in Hawaii, which he can afford because he is no longer paying bills and isn’t accruing one bit of interest or penalties, while he waits for his case to make the court calendar. Now he can spend every cent he earns on necessities like food, clothing, vacations, premium cable, exfoliation and Cuban cigars. His skin is clear, his belly is full and he is up to date on the latest episode of Weeds.
The old way of thinking would have labeled Prince an immoral cad. Today he probably qualifies for a top banking job. On the other hand, Pauper comes off a naïve douche with bad teeth, unattractive skin and a twitch.
Before you rush off to declare bankruptcy, a few important tips. Maximizing the amount you'll be absolved from owing is just good business sense. Make sure you charge all your credit lines up to the limit before declaring. Get things you really need like a good haircut, pedicure and fancy Italian espresso/cappuccino maker (think of the money you'll save on Starbucks). While Chapter 11 is the most famous kind of bankruptcy, you'll want a Chapter 7, which lets you keep your material possessions without necessitating a repayment plan. You’ll probably lose your house if you have one, all your other possessions like your flatscreen, Dolce and Gabbana ensemble and sub-zero remain yours. You just don’t have to continue paying them off. And now that your house is worth less than you're paying for it, squatting there for free is a welcome relief from the burden of ownership.
Sound too good to be true? Well, there is a catch. It’ll cost you. In order to declare bankruptcy, there's a fee and you’ll probably need a lawyer, which usually costs $5,000 – $6,000 (which if you had it, you wouldn’t need to declare bankruptcy). So before you enter into an arrangement with any lawyer, make sure he or she accepts credit. If you can’t find a willing lawyer, try bartering. Sure, you may have to sacrifice your first born child, but you’re doing it for your child's own good (bankruptcy law is booming—he/she shall not want).
The other option is to file the initial claim yourself and go to law school. You'll earn your degree before the case comes to court.
The sooner you file, the sooner you can begin your new stress- free life and start accumulating new debt. Rumor has it Narciscoo Rodriguez's fall line is to die for.