Bankruptcy = Opportunity

October 1, 2020

It’s hard for many people to think in such terms but in fact filing a bankruptcy provides a great new opportunity.  Long before we had a bankruptcy regime few people had access to debt (credit) mostly the wealthy loaned money to other wealthy people.  There were few written contracts, most people couldn’t read and write anyway, just understandings, quite literally on a “handshake”.  And if you couldn’t pay your debts you would forfeit your property to the lender and possibly end up in debtors’ prison.

If you were committed to prison your family and friends would have to support you during your sentence, providing food, clothing, and other necessities.  You may very well have spent the rest of your life in jail or at least stayed there until a friend, relative, or other benefactor paid off your debts.

By the mid-twentieth century debt had become common place and by the end of the century a necessity to maintain a modern lifestyle.  Debt had become easily attainable and extremely expensive to obtain and to maintain.  With lenders borrowing money – to relend – at rates hovering around the 2% then relending it at rates up to 39% it was like going to the casino, “the house always wins”.  Even if a third of the borrowers defaulted, completely, the lenders would still make immense profits.  The dice are loaded.

All businesses operate with an expectation of profit, the margins for most small business operators are quite slim, but as long as there is something left over after all the bills and employees have been paid that would be considered a success.  For larger, more influential businesses and especially those in the lending business the stakes are much higher.  They are taking risks on their customers by lending money in the hopes of a return, if the margins were too thin, they would find something else to invest in, something with a return that has a higher degree of certainty.

These days, if you are unable to pay your bills as they come due and simply cannot repay your creditors bankruptcy is a great opportunity for renewal.  It is an opportunity for both the lender and the borrower.  The borrower gets relief from collection activities and the need to repay the debt and the lender can write off the debt getting some tax relief, and in the future, can renew their relationship and regain a customer.  Filing a bankruptcy, as ironic as it may seem, can be a win/win.

Bankrupts do not have to wallow in debtors’ prison and can start to re-establish their credit much more quickly than they usually think following discharge.  Most bankrupts never have to go court to get a discharge or for any other reason.  Most bankruptcies are completed in terms of 9-24 months.  We often hear people say, “with all the interest I have paid that debt several times over anyway” and they are quite right, the principal part of the debt may very well have been paid long before the payments fall into default.  Lenders, of course, know the risks when the go into business and make allowances for a certain percentage of losses or write-offs.  In most cases actual default levels run below expectation.

If you are having trouble with paying your debts and need to talk about solutions just remember, your most feared solution may be your best opportunity to get out of debt and get a fresh start.   Call 519-646-2222 for a free consultation to discuss all of your options.