Marshall Socarras Grant, P.L.’s Members in Forbes’ Online Bankruptcy ArticleAugust 20, 2013
Marshall Socarras Grant, P.L.’s members Adam Marshall and Joe Grant have been featured in Forbes’ Entrepreneurs Section and recent online article. Click here to see the entire article, or read it below.
Cameron Keng, Contributor for Forbes
How To Bounce Back From Bankruptcy & The Loss Of Your Home
I tell everyone that before they start a business, they should imagine going through personal bankruptcy and losing everything. If you can’t bear with those consequences, then you might want to take a serious moment to rethink the decision. I never advocate going all-in on a business, but at the very least it should be something that crosses your mind before taking the road less traveled.
However, if you choose to take the road less traveled and find yourself in the unfortunate circumstance that is bankruptcy, then the following are mistakes you should avoid and important things you should know.
Avoid Losing Your Home
My story begins with my immigrant parents and our home. Our business was in dire straits and we didn’t have liquidity or cash anywhere besides our home. As immigrants, my parents were accustomed to bankruptcy law in Asia. Taiwan as well as most of Asia doesn’t forgive debts through bankruptcy and debts are inherited by the children. Thus, children inherit the debts of their parents – very Confucian in theory, but it’s a result of extensive corruption in the political system. Bearing this in mind, my parents used their home as collateral to support the business and we ultimately lost our home.
This could’ve been avoided. Bankruptcy law in the United States not only allows you to forgive debts or liabilities, but there are also homestead exemptions in almost every state except New Jersey and Pennsylvania. But, even New Jersey and Pennsylvania have circumstances, where the home is protected. States that potentially allow unlimited homestead protection are Arkansas, Florida, Iowa, Oklahoma, South Dakota and Texas.
Florida and Texas are the most well-known homestead exempt states. Extreme examples of people taking advantage of these “homestead exemptions” are Jeff Skilling and Ken Lay from Enron. They infamously decided to immediately purchase homes in Florida and Texas because of the bankruptcy laws in those states. Jeff Skilling owns a $4.2 million dollar home in Houston, TX and Ken Lay owns a $7.1 million condo down the street from Mr. Skilling. Even OJ Simpson purchased a home in Florida to protect his assets from his slain wife’s family. Thus, if these disreputable people can be protected by bankruptcy laws, then honest citizens like you would most definitely be protected as well.
Things Exempt In Bankruptcy
- Wages or salaries – large portions of wages (75% or more) are may be exempt from bankruptcies.
- Personal Property – household items such as cookware, jewelry up to certain dollar limits, bank accounts or deposits up to certain dollar limits, as well as personal injury payments such as workers compensation and etc.
- As a side note: The jewelry exception was particular important to me because I hold a family heirloom. A gold necklace of substantial value (about $10,000 by today’s valuation) that I’ve worn, since birth. Losing the necklace would’ve been a huge loss to our family’s heritage.
- Retirement & Pensions
- Student Financial Aid
- Tools used in your trade or business up to certain dollar limits
- Insurance up to certain dollar limits
How Much Does Bankruptcy Cost?
There are 3 types of bankruptcies. Joe Grant and Adam Marshall are experienced bankruptcy attorneys that have worked on cases such as theLoftin bankruptcy selling the Versace Mansion. They explain that the most popular or well-known are the Chapter 7 (Liquidation) and Chapter 11 (Reorganization) Bankruptcies. The lesser-known Chapter 13 Bankruptcy is meant for only individuals and is similar to a Chapter 11 Bankruptcy.
Chapter 7 Liquidation – $2,500 to $10,000 dollars
Adam Marshall from Marshall Socarras Grant, P.L. explains that a liquidating bankruptcy can be applied for by an individual or a business. Once you start the ball rolling, the Chapter 7 liquidation cannot be stopped. Thus, deciding to liquidate cannot be undone –so think it over carefully!
Chapter 11 Reorganization – $25,000 dollars and up (Chapter 13 – $15,000 dollars and up)
Joe Grant from Marshall Socarras Grant, P.L. explains that a reorganization is complicated and expensive because there is an ongoing business. Chapter 11 reorganization essentially takes the business’ authority to make decisions away. For example, paying your employee’s requires a judicial approval. These approvals require a lot of paperwork and bureaucracy that increases the legal costs.
How Long Does It Take To File Bankruptcy?
Bankruptcies can vary being simple Chapter 7 liquidation cases that can be resolved in 90 to 120 days. But, they can also be complicated and last between 6 months to 2 years such as in a Chapter 11 or 13 reorganization. The time it takes to file a bankruptcy varies with each individual case, but these are reasonable estimates for you to understand the timeline.
Bankruptcy sucks. There’s nothing else to say about it. But, the home we lost could’ve been prevented, if my parents openly spoke about the business’ financial circumstances. Keeping secrets or hiding the problems because of pride or shame was the single greatest cause of losing our home. I hope that no one will have to make the same mistakes we made in the past.
In hindsight, filing bankruptcy was probably the best decision we ever made. Bankruptcy gave us all a second chance to start over our lives and I’ve continued to start new businesses that have grown to become successful.
Next week, I’ll be following up on why, when or if a business should consider filing for a Chapter 11 Reorganization bankruptcy. Let me know your thoughts!
Disclaimer: The information provided is not legal advice and you should always consult an attorney for your individual circumstances. The article should not be confused for legal advice.