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Bankruptcy provides safety net for failed ventures

Special to the Palm Beach Daily News

October 3, 2009

What's Donald Trump done more often than most other Palm Beachers?

No, not get married. Declare bankruptcy.

Not personal bankruptcy, but business related. And it turns out he's in good company.

Look back into history and the names of those who have done the same reads like a list you'd put together when playing that if-you-could-invite-five-famous-people-to-dinner-who-would-they-be game. Mark Twain, J.C. Penny, P.T. Barnum, Henry J. Heinz, Milton S. Hershey and Walt Disney are just of few of them. We can't overlook Thomas Jefferson and Abraham Lincoln either.

Honest Abe, who practiced bankruptcy law in Illinois before moving on to greater things, was said to have told a friend that debt was his life's greatest obstacle.

Anyone in a money pickle can relate to the truth in that comment.

"Bankruptcy" comes from the Latin words "bancus" meaning bench or table and "ruptus" or broken. Behind the word is a many-century's-old story about a banker who conducted his work in a marketplace and when things went sour, the bench was broken as a symbolic gesture to show failure and an inability to meet obligations.

In the United States' early days, bankruptcy laws came and went. Now it seems they are here to stay.

The first, enacted in 1800, was a result of land speculation and was repealed in 1803. The last, in 2005, was when then-President George W. Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act. Amendments were made to it in 2007. But the act, according to the U.S. Department of Justice, "opens a new era in the history of bankruptcy law and practice."

And indeed it has.

While individuals and businesses may file for bankruptcy, no longer is filing for personal bankruptcy a relatively simple and inexpensive matter of having your debts discharged for about $500. Today, it's much more complicated -- fees are higher, classes required, means tests applied and depending upon the chapter of the U.S. Bankruptcy Code filed, pay-back payments required.

"Bankruptcies generally fall into two categories -- liquidation cases and reorganization cases," says Eric A. Rosen, a bankruptcy attorney at the firm Rosen & Winig in Palm Beach Gardens.

Businesses may be either liquidation cases filed under Chapter 7 or reorganization cases filed under Chapter 11 of the code, he said. "If an individual has a reorganization case it may be filed under Chapter 13 or Chapter 11."

If that sounds confusing, so is the whole bankruptcy bag. And although many have filed on their own without an attorney, if your estate is substantial, you'll need an attorney who knows his way around and has expertise in the field.

Basically there are five kinds of cases in the code, each named after a chapter in it: Chapter 7 is a straight liquidation process only; Chapters 9, 11, 12 and 13 are reorganization filings.

With the number of wealthy individuals in the United States growing over the past decade and the current fall of prices in the stock and real estate markets, the type of filings individuals are making is changing.

A recent Bloomberg report said the number of wealthy individuals filing bankruptcy under Chapter 11 leaped 73 percent during the second quarter of 2009 from 2008. Those figures were based on statistics from the National Bankruptcy Research Center in California.

What's unusual about that, in addition to the increase, is that Chapter 11 filings have typically been used more for businesses than individuals -- and they are more expensive to file. Plus, payments due to trustees on a quarterly basis can run into many thousands of dollars depending on the amount of the disbursements made during the calendar quarter.

So who files for Chapter 11 reorganization?

Corporations or individuals with unsecured debts totaling more than $336,900 and secured debts of more than $1,010,650, according to data from www.bankruptcylawnetwork.com.

Look at what's happening in Palm Beach County this year. In August, 392 bankruptcy cases were filed. Most, 280, were Chapter 7 filings, followed by 111 Chapter 13 filings and one Chapter 11, according to data from the United States Bankruptcy Court Southern District of Florida.

Among filings within the total Southern District for various 12-month periods ending Aug. 31, the increase in bankruptcy filings is huge.

In the period ending Aug. 31, 2007, there were 9,978 filings; through Aug. 31, 2008, there were 17,225 filings; through this Aug. 31, there were 26,143. That's a jump in bankruptcy filings in this region of the state of nearly 47 percent between 2008 and 2009.

If you're one of the many facing financial challenges today and considering bankruptcy, keep these two things to keep in mind:

  • Bankruptcy isn't for everyone.
  • Don't beat yourself up.
"Most people are in this situation because of genuine circumstances," says Bruce Parrish, a bankruptcy attorney in West Palm Beach. "Many have gone through divorce, have medical issues, lost their jobs or have overextended themselves.... It's usually because of circumstances that are not under their control that result in bankruptcy."

To read more articles, please visit the column archive.

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