Post: #1

Former England soccer keeper has just declared himself bankrupt after a divorce.

He seemed like a smart guy and earned about 30 million dollars in his career.

http://www.telegraph.co.uk/finance/perso...krupt.html

The reason I wanted to start a thread on this is because I am confused what bankruptcy actually means in this day and age.

About 200 years ago - you would go to Debtors prison and be enslaved until you repaid your debt (I think that is how it worked in Dickensian England).

But these days - it seems you can declare bankruptcy, sit on the naughty step for a year and then get on with your life.

Is that what this sentence means?

Quote:The documents state Mr James, who now works as a football pundit for BT Sport, will be automatically discharged from bankruptcy in a year.

Also - for those declaring bankruptcy - do they have to give up their expensive houses - or do they get to keep them?

I am just confused about this whole area. Both in terms of how it used to be - and how it is today.

When I was a kid - I thought bankruptcy meant going to live on the streets. But these days - it seems to mean you take a break from partying for a year.

I am confused.

Post: #2

Quote:Also - for those declaring bankruptcy - do they have to give up their expensive houses - or do they get to keep them?

Haha keep them. Bankruptcy is a very powerful tool and a great way to play "chicken" with the banks. Some people have no choice as they are unreasonable and a bankruptcy judge will force them to come to the table that's why so many people use it.

Not only do they keep them if underwater they can reduce your principle and it's almost automatic on vacation houses or second homes, second mortgages and other unsecured debts get wiped off pretty much.

This is a very complicated subject.

Post: #3

And once again, the incomparable Cardguy baits us with another one of his doe-eyed "I was just wondering if..." type of thread.

How can I resist these charms, angelic but yet subtly subversive?

Post: #4

I should Google a question like this. But I think the question is interesting enough for a discussion.

I wanna' hear peoples experiences in this area? I can't be the only guy who has thought of setting up a business, running up a bunch of debt - and then declaring bankruptcy.

What are the consequences? That you cannot run a business for a year? Is that it? WTF???

Post: #5

(05-16-2014 11:08 AM)cardguy Wrote:  I should do google A question like this. But I think the question is interesting enough for a discussion.

I wanna' hear peoples experiences in this area? I can't be the only guy who has thought of setting up a business, running up a bunch of debt - and then declaring bankruptcy.

What are the consequences? That you cannot run a business for a year? Is that it? WTF???

There's no reason to do that. If you're gonna go do it big.

Post: #6

Well one thing to keep in mind, obviouslu, is the long term consequences it will have on your credit. If you ever plan to buy a car or home, lease an apartment in a first tier city, or apply for a credit card/loan, you will find it far more difficult/impossible to do any of those things and you will probably be saddled with substantially greater fees and interest rates than you otherwise would. one thing i can say for sure, having experience in this area, you would basically be barred from renting or owning in nyc if that were something you ever wanted to do.

of course if you already own the home, car, etc this may be a moot point.

Post: #7

In Germany you have to give the additional money you have to them, after the 7 years you are a free man. So the only thing you have to do is to get a lot af money on credit then spend it or put it in a safe place and then live a simple life for 7 years. After that you are a rich men.

Post: #8

You ask a lot of questions for a lot of things that you don't plant to take action on.

It reminds me of California Supreme's private jet question......but then again, CS actually wanted to get one.

Post: #9

Well the alternative you stated - debtor's prison - doesn't seem quite logical at all. How is sending people to jail going to get them to make enough money to pay off the debts?

Post: #10

^^^
It was called "sponging".
Either they stayed there until family/friends bailed them out, or they took up work and had their earnings garnished by the creditor while staying in prison. In "Nicholas Nickleby" a woman and her insolvent father are confined, and she supports them with painting work.
There were all kinds of fascinating laws governing debts. For example:
-The London district of Southwark contained a legal refuge for debtors and criminals. Officers and bailiffs couldn't go in by law, and usually wouldn't try on account of the risk, so they watched the entrances to catch any delinquent coming out-it was an unpleasant place, prone to flooding and disease, and there were no shops to buy food. On Sundays, when you couldn't be arrested, the men who owed so much would come out, and do business or borrow more money to pay off the original debt and survive on. They were called "Sunday gentlemen".


On topic, I think bankruptcy seems like a con under certain circumstances, i.e. LLCs and similar arrangements. I remember talking about the Weimar hyperinflation with a friend of mine who read economics at uni- he said that owing money then was much better than being owed it, because so many people took advantage of the constantly widening gap between the sums owed and the hyperinflated wages- bankrupt companies and individuals paid off enormous debts with money that was worth nothing to the creditors.
Like so many things, it's a matter of arbitrage. As has been said already, if a debtor threatens to claim bankruptcy, the creditor might get nothing, and so he'll do anything to avoid that. It's dumb to claim it to dismiss a relatively small debt, but threatening to might be the only card that debtors can play.

Post: #11

(05-16-2014 11:08 AM)cardguy Wrote:  I should Google a question like this. But I think the question is interesting enough for a discussion.

I wanna' hear peoples experiences in this area? I can't be the only guy who has thought of setting up a business, running up a bunch of debt - and then declaring bankruptcy.

What are the consequences? That you cannot run a business for a year? Is that it? WTF???

Debt against a UK incorporated company is nothing to do with the owner in most cases.... You see it all the time. Ltd company gets in to massive debt, the owner simply winds the company up and re-opens another. The only time the owners are liable is when its blatant fraud.

See: http://en.wikipedia.org/wiki/Phoenix_company

Post: #12

(05-16-2014 11:08 AM)cardguy Wrote:  I should Google a question like this. But I think the question is interesting enough for a discussion.

I wanna' hear peoples experiences in this area? I can't be the only guy who has thought of setting up a business, running up a bunch of debt - and then declaring bankruptcy.

What are the consequences? That you cannot run a business for a year? Is that it? WTF???

The court will declare any money that you took out of the business a fraudulent transfer, pull it back into the estate, use it to pay your debts, and may allow creditors to pierce the corporate veil to reach your personal assets.

Public service announcement: Bankruptcy fraud is a bad idea, although you have a shot at pulling it off if you are both smarter and better-versed in bankruptcy law than most bankruptcy lawyers.

99% of you are not both smarter and better-versed in bankruptcy law than most bankruptcy lawyers. Do not attempt to commit bankruptcy fraud.

This is not legal advice.

Post: #13

(05-16-2014 11:45 AM)Samseau Wrote:  Well the alternative you stated - debtor's prison - doesn't seem quite logical at all. How is sending people to jail going to get them to make enough money to pay off the debts?

I suppose it means they are going to pay them off because they wont want to go to jail.

Post: #14

(05-16-2014 11:05 AM)el mechanico Wrote:  

Quote:Also - for those declaring bankruptcy - do they have to give up their expensive houses - or do they get to keep them?

Haha keep them. Bankruptcy is a very powerful tool and a great way to play "chicken" with the banks. Some people have no choice as they are unreasonable and a bankruptcy judge will force them to come to the table that's why so many people use it.

Not only do they keep them if underwater they can reduce your principle and it's almost automatic on vacation houses or second homes, second mortgages and other unsecured debts get wiped off pretty much.

This is a very complicated subject.

I own a non performing second mortgage on a guy that filed chapter 7 bankruptcy a few years back. He still lives in his house and is still paying his first mortgage.

I'm not really sure what BK court absolved him from paying.

When I started calling the guy he was convinced he didn't owe anything on the second because he had filed bankruptcy. He thought the lien had been wiped.

Since there is no equity in the second mortgage he could potentially go back to BK court and have the lien wiped.

As far as second mortgages go, as long as there is equity in the lien, the mortgage can't be wiped.

So right now I'm gonna let this borrower pay down his first, let some equity accrue, and then call him up again to work something out.

He'll probably try to run back to BK court, but he won't be able to do shit.

Post: #15

(05-16-2014 10:54 AM)cardguy Wrote:  Also - for those declaring bankruptcy - do they have to give up their expensive houses - or do they get to keep them?

Insolvency Accountant here.

Can't speak for the bankruptcy law in the US, since I'm in Australia, however I would guess it would be similar to here - if there is no equity in the property, and the bankrupt is able to continue servicing the mortgage/loan, then those assets are able to be kept by the bankrupt, as essentially they aren't assets and the bankruptcy Trustee wouldn't give two shits about them (they'd be disclaimed - and the financier can take action if necessary, i.e. if bankrupt falls into arrears over the course of the bankruptcy).

Creditors are always jumping up and down saying, oh, I saw so and so driving an expensive car around town. That's because they owe more than what its worth. Pretty simple.

Post: #16

(05-16-2014 11:08 AM)cardguy Wrote:  I should Google a question like this. But I think the question is interesting enough for a discussion.

I wanna' hear peoples experiences in this area? I can't be the only guy who has thought of setting up a business, running up a bunch of debt - and then declaring bankruptcy.

What are the consequences? That you cannot run a business for a year? Is that it? WTF???

Running a business or a company? They are two very different things.

Running a business (sole trader or partnership) means you (and your partner) are on the hook for debts incurred by that entity. There is no "corporate" protection. All liability is personal.

On the other hand, if set up as a Pty Ltd company, with director(s) & shareholders - there is no personal liability per se, and by the same token, there is no personal ownership either as all assets are owned by the company. However, some businesses/companies you trade with will only do so upon the director(s) personally guaranteeing debts incurred by the company - so if the company becomes insolvent, those debts guaranteed by the director(s) can be pursued by the relevant creditor(s).

Also, the tax office can enforce personal liability in circumstances that the company has an unpaid tax liability, which is almost always present.

If you declare bankruptcy in Australia (or a sequestration order is made against you by a petitioning creditor), your credit rating is affected for a total of 7 years. You do get to keep personal household items, and certain assets with equity to a set threshold (tools of trade, motor vehicles). As a bankrupt, you can earn up to a certain threshold before the Trustee claims 50% of your earnings (dependents in care and other allowable deductions are taken into consideration).

If you're a director of a company, and end up becoming bankrupt because of personal liability, you can't be a director of a company for the period of your bankruptcy (it's 3 years here). If you're bankrupt and run a "business" and want to continue doing so, you can, however you either need to tell everyone you trade with that you are personally bankrupt, or display your full name in the business name - the idea behind that legislation is that it gives your clients a chance of at least running an accurate check on your history.

So, despite a company "on paper" appearing as though is offers the best protection for a director, depending on who you're trading with, it can be a bit of a minefield.

Post: #17

If bankruptcy can ruin you for life, it creates a huge disincentive to do financially risky things - like taking out a loan to start a business. Imo, the economic benefits from productive financial risks encouraged by lenient bankruptcy laws in the US far outweigh the harm caused by degenerate scumbags who abuse the system.

Post: #18

(05-16-2014 11:52 PM)El_Superbeasto Wrote:  If bankruptcy can ruin you for life, it creates a huge disincentive to do financially risky things - like taking out a loan to start a business. Imo, the economic benefits from productive financial risks encouraged by lenient bankruptcy laws in the US far outweigh the harm caused by degenerate scumbags who abuse the system.

Otoh, if creditors didnt have to deal with people defaulting so often, maybe the interest rates would be much much lower. Plus if I started a business I dont have to take loans; I can just get venture capital or raise money myself, or even find a way to get started without capital.

Post: #19

There was a great passage in Oscar Wilde's De Profundis where he discussed bankruptcy being a lot more restrictive and ruinous to a person than what people usually imagine. But he wasn't a guy who played the system much so his view might be biased.

Post: #20

Yes, it's a con but only at the higher levels when you're talking about millions being written off the books. An example of someone who has utilized bankruptcy laws like a financial wizard to enrich himself is non other than Donald Trump. He was on the brink many times with bad investments and used bankruptcy court to get out of it. It's essentially privating profit and socializing risk.

Trump is undeniably good at what he does..and that is make use of other people's money and connections for maximized benefit. People think guys like this develop stuff but actually they are just middle men funneling funds into projects while taking a hefty slice off the top. Then when shit goes wrong they are the first to bail or pass on the risk to investors or through bankruptcy court to taxpayers. It's brilliant really but it's difficult to recreate this type of scheme unless you have the same old money connections like the Trump family has always had.

Post: #21

Yes. It's a huge con. Never file for bankrupcy. As kevin O'leary said you become toxic.
No bank will lend you money. You don't fool creditors twice.
There are historically two goals with bankrupcy, which are conflicting:

- Pay the creditors and punish the debtor,
- Give a fresh start to the debtor.

Sometimes law chooses one or the other or try to mix both.
From my experience fraudulent bankrupcies are minimal. Normally It's a domino effect. The first company doesn't pay and files for bankrupcy. Then the second company which expected to receive payments also fail.
If you have a good lawyer he will negotiate every debt and setle with creditors for better payment conditions. And avoid bankrupcy. Most lawyers just file for bankrupcy since it's less work.
Lawyers usually use bankrupcy as a bluff or A bom. Both on the creditor or debtor side.
In roman times there was a law which you could make the debtor you're slave or cut him up And divide him by the creditors.

Post: #22

(05-16-2014 08:18 PM)cooledcannon Wrote:  

(05-16-2014 11:45 AM)Samseau Wrote:  Well the alternative you stated - debtor's prison - doesn't seem quite logical at all. How is sending people to jail going to get them to make enough money to pay off the debts?

I suppose it means they are going to pay them off because they wont want to go to jail.

And if they don't have any money?

Post: #23

(05-16-2014 10:16 PM)renotime Wrote:  

(05-16-2014 11:05 AM)el mechanico Wrote:  

Quote:Also - for those declaring bankruptcy - do they have to give up their expensive houses - or do they get to keep them?

Haha keep them. Bankruptcy is a very powerful tool and a great way to play "chicken" with the banks. Some people have no choice as they are unreasonable and a bankruptcy judge will force them to come to the table that's why so many people use it.

Not only do they keep them if underwater they can reduce your principle and it's almost automatic on vacation houses or second homes, second mortgages and other unsecured debts get wiped off pretty much.

This is a very complicated subject.

I own a non performing second mortgage on a guy that filed chapter 7 bankruptcy a few years back. He still lives in his house and is still paying his first mortgage.

I'm not really sure what BK court absolved him from paying.

When I started calling the guy he was convinced he didn't owe anything on the second because he had filed bankruptcy. He thought the lien had been wiped.

Since there is no equity in the second mortgage he could potentially go back to BK court and have the lien wiped.

As far as second mortgages go, as long as there is equity in the lien, the mortgage can't be wiped.

So right now I'm gonna let this borrower pay down his first, let some equity accrue, and then call him up again to work something out.

He'll probably try to run back to BK court, but he won't be able to do shit.

You better talk to a lawyer. There's a good chance you're fucked.

Post: #24

(05-16-2014 10:16 PM)renotime Wrote:  

(05-16-2014 11:05 AM)el mechanico Wrote:  

Quote:Also - for those declaring bankruptcy - do they have to give up their expensive houses - or do they get to keep them?

Haha keep them. Bankruptcy is a very powerful tool and a great way to play "chicken" with the banks. Some people have no choice as they are unreasonable and a bankruptcy judge will force them to come to the table that's why so many people use it.

Not only do they keep them if underwater they can reduce your principle and it's almost automatic on vacation houses or second homes, second mortgages and other unsecured debts get wiped off pretty much.

This is a very complicated subject.

I own a non performing second mortgage on a guy that filed chapter 7 bankruptcy a few years back. He still lives in his house and is still paying his first mortgage.

I'm not really sure what BK court absolved him from paying.

When I started calling the guy he was convinced he didn't owe anything on the second because he had filed bankruptcy. He thought the lien had been wiped.

Since there is no equity in the second mortgage he could potentially go back to BK court and have the lien wiped.

As far as second mortgages go, as long as there is equity in the lien, the mortgage can't be wiped.

So right now I'm gonna let this borrower pay down his first, let some equity accrue, and then call him up again to work something out.

He'll probably try to run back to BK court, but he won't be able to do shit.

Call his trustee. I think they have to stick with them for 3 years but if you bought that after he filed more than likely you got hosed. Sue the people who sold it to you then

Post: #25

(05-17-2014 10:14 AM)Samseau Wrote:  

(05-16-2014 08:18 PM)cooledcannon Wrote:  

(05-16-2014 11:45 AM)Samseau Wrote:  Well the alternative you stated - debtor's prison - doesn't seem quite logical at all. How is sending people to jail going to get them to make enough money to pay off the debts?

I suppose it means they are going to pay them off because they wont want to go to jail.

And if they don't have any money?

Well if you are going to risk going to jail, then you are going to get the money one way or another.

Or alternatively, you could just not borrow in the first place.