Bankruptcy
 
A debtor may hide from you, he may stonewall you, he may run from you, but he can never escape the fact that he owes you money - unless he declares bankruptcy. The laws give the federal bankruptcy courts the right to wipe away your customer's debt to you in one stroke of the pen. 

 

There a few things, however, you should know about bankruptcy, before one of your customers threatens you with it to get you to stop your collection efforts.

 

To begin with, there are really two types of bankruptcy. The first is called straight, or Chapter 7, bankruptcy. In straight bankruptcy, the debtor is seeking to have all or most of his debts wiped clean. He is, in effect, telling the court, "Here are my assets. Give what I have to my creditors, then wipe the slate clean so I can start over." The debtor in straight bankruptcy is allowed to keep a few of his or her assets, such as a house and some belongings.

The second type is called reorganization, or Chapter 11 bankruptcy (Chapter 13, for individuals who want to reorganize). In this case, the debtor is attempting to have the court take control of his or her finances and to work with all the creditors to formulate a repayment plan. The plan will allow the debtor to continue in business while the debts are being repaid. Your chances of collecting from the debtor are better in Chapter 11 or Chapter 13 than in Chapter 7.

The second thing you need to know is that once you discover that your customer has filed for bankruptcy, you must stop all your collection efforts. At this point, you should contact your lawyer. Have the lawyer file a proof of claim with the court on your behalf. And any payments you've received within the last 90 days of the bankruptcy may have to be returned to the bankruptcy estate.

The third thing you need to know is that the best protection you can have against someone going into bankruptcy is to have collateral security for your debt. If you have collateral for your debt, you are considered to be a "secured creditor." In bankruptcy, secured creditors are paid before unsecured creditors. In fact, statistics indicate that the average secured creditor receives about 77 cents on the dollar, while the average unsecured creditor receives only about 2 cents. So you're much better off if you have collateral.

The fourth thing you need to know is that debtors love to use the threat of bankruptcy to thwart collection efforts. While you need to take any such threat seriously, you shouldn't automatically knuckle under to it. Unless you are one of the debtor's major creditors, your debt is unlikely to be the reason why he declares bankruptcy.

   

Don't miss the next estate planning and wealth preservation seminar with Craig Gerard on November 18 at 12pm or 6pm, lasting for approximately one hour.   jcb@thegallagherlawfirm.com. The last seminar of the year will be December 16.
 

 

Even into adulthood, there is a notion that parents will be there to take care of us both emotionally and financially.  However, an increasing number of adult children are finding themselves cutting into their own savings and retirement funds to support their parents.  In some cases, children even go into debt to help cope with the living and medical expenses of their aging parents.
 
Recent statistics from the U.S. Census Bureau found that the number of parents who have moved into their adult children's homes increased 67 percent, from about 2.1 million in 2000 to 3.6 million last year.  There are a number of factors that are making parents increasingly more dependant on their adult children.
 
First, retirees are living longer.  Statistics from the U.S. Census Bureau project a 147% increase in the 65-and-older population between 2000 and 2050. By comparison, the population as a whole is projected to increase by only 49 percent during the same period.  It is increasingly more common for retirees to live well into their 80's and 90's.  As a result, many elderly individuals are finding that their retirement funds are depleting much faster their health.  Therefore, parents frequently turn to their adult children for financial support when they outlive their retirement savings.   
 
Next, the slumping economy has particularly affected retirees.  Prior to retirement, most workers plan for their financial future based on projections and predictions.  However, when unexpected financial conditions occur, as they have lately, it can have a significant impact on retirees with fixed incomes.  Many elderly have seen their retirement accounts shrink with the slumping stock market and the equity in their homes plummet with the slumping housing market.  When the assets that retirees were planning on relying on during their retirement suddenly disappear due to a struggling economy, many parents are forced to rely on their adult children to supplement their expenses.
 
Rising costs also have a significant impact on retirees.  Again, most elderly Americans rely on a fixed income.  However, prices for everything from food to gas to medical expenses have been anything but fixed as of late.  The rising cost of health care, housing, and energy make it difficult for individuals on a fixed income to pay their bills.  When parents can no longer afford their monthly expenses, their adult children are often relied upon to offset the rising costs.  In many cases, parents may have to move in with their adult children in an effort to consolidate living expenses. 
 
The group most effected by these trends are members of the so-called "sandwich generation" who find themselves financially supporting both their aging parents and their own children.  Many individuals nearing retirement struggle to provide financial assistance to their high school and college aged children while also preparing for their own future financial stability.  However, that financial burden can become overwhelming when adult children are forced to support their aging parents in addition to their children.
There are a number of benefits that can help relieve the financial pressure placed upon adult children who are faced with supporting their aging parents.  The attorneys at the Gallagher Law Firm can assist you with coordinating governmental benefits available to your aging parents such as Medicare, Medicaid, Social Security, and VA benefits.  Specifically, if a loved one is currently in a nursing home or may need long-term care in the foreseeable future, our attorneys can assist you with coordinating benefits that can help offset the high cost of nursing home care.  Please contact Peter Brown at 517-853-1518 or via email at pcb@thegallagherlawfirm.com.