To Fight Bankruptcy, Arm Yourself With Knowledge: Get Qualified Help Or Get Plundered

Bankruptcy is more common than you might think: nearly one million people file for it each year. And many of those bankruptcies involve small businesses.

Small business owners typically face challenges that larger businesses do not, especially when it comes to financing. Many self-employed business proprietors end up borrowing against credit cards when they can’t obtain bank financing-and bad business debt is one of the primary reasons for bankruptcy filings, along with medical bills, and divorce.

Since passage of the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005, small business owners have been left with no viable alternatives to bankruptcy. And because of that law, business owners can no longer discharge their credit card debt in bankruptcy. In the past, a person who founded a business that failed could more easily start all over because there was no obligation to repay that debt. Today, after a bankruptcy, those owners don’t often get the chance to be entrepreneurs once again-they become long-term debtors.

Hal Chorney’s own experience with bankruptcy has taught him that the laws favor a number of special interest groups, including banks and credit card companies. He found that during the bankruptcy process, the self-employed businessperson is like David, fighting the Goliaths of the world with rules that were written by Goliath’s side.

Hal’s bankruptcy involved his company, a tangible investment advisory firm that had a $2.5 million loan. It was such an extreme case that it took twenty-two years to resolve and involved complex property, liberty, and tax issues. Most business bankruptcies are less complicated and take less than three years to settle.

Hal described some of this ordeal in his book, PIE-RATS, Those Who Plunder You in Bankruptcy. His book details how his case involved some injustices. But this is not just Hal’s story; some bankruptcy experiences are universal. It’s a rigged system, and the deck is stacked against you.

Navigating the bankruptcy system can be very difficult for anyone, most notably for small business owners. If you don’t have the money to hire a lawyer, you’ll likely end up representing yourself in a pro se capacity, which is the route many small businesses take in bankruptcy. Even if you can afford legal counsel, the best thing you can do is to educate yourself with all the information you can to survive the process.

When Hal went through his own bankruptcy as a business owner, he discovered that it helps to be proactive and a quick study to learn as much as possible about what you’re going through. Here are three tips to prepare for entering bankruptcy protection:

1. Obtain some basic legal reference materials:

• Get a copy of Black’s Law Dictionary, the most widely used and cited law dictionary in the U.S. It’s a comprehensive reference, with tens of thousands of definitions of terms used in legal briefs and court opinions. Pleadings contain a lot of legal jargon that can be confusing for anyone not familiar with the law. Black’s is just as essential for a law student as it is for a lay person.
• Find the book Bankruptcy Code, Rules and Forms. It will help you understand how to find references to a paragraph, or a subparagraph, cited in a legal pleading.
• A number of books on submitting Freedom of Information Act and Privacy Act requests can show you how to access information gathered by governmental agencies that may be significant to your case. A sample request form can be obtained at www.halchorney.com, PIE-RATS, Appendices in book, Appendix I.

2. Locate a legal library:

• Find a law library near you to help you uncover other resources you may need. Many courts have their own law libraries, as do law schools. You can also get some of this information online. Libraries provide a treasure trove of vital information.

3. Spend some time online:

• Be sure to access many of the websites that assist pro se filers in all aspects of legal proceedings. For case law and codes of federal regulations, check out FindLaw.com; JurisLine.com; and GPO.gov, the Government Printing Office, with circuit court of appeals decisions going back to 1995.
• For more details on bankruptcy court, consult the United States Courts website (http://www.uscourts.gov) for information on trustees, court filing fee schedules, and many other details about bankruptcy court filings in your state. Also, try the government’s Public Access to Court Electronic Records website (www.Pacer.gov), an index for district, bankruptcy, and appellate courts.

Keep in mind that individual state bankruptcy courts can follow different rules. Luckily, many of those rules can be found online. Remember, you’re playing in the other guy’s arena, so you’ll want to know the rules of the game. If you’re going strictly by national rules in a federal court, and the court has slightly different local-rule requirements that can affect you tremendously.

Since Hal believes that the system is not in your favor, in many respects, you need to become your own one-person band, working to do things for yourself. Always act under the assumption that the government is not there to help you, so establish a paper trail of everything that you do. That’s what Hal’s experience with the bankruptcy process taught him.

So, with your new resources and knowledge, get out there and get to work — and good luck as you work through your own bankruptcy journey. There are ways to cope and get through it, even if you are not a quick study.

Hal Chorney is a small business bankruptcy and privacy consultant who lives in Wellington, Florida. He is also the author of PIE-RATS, Those Who Plunder You in Bankruptcy, and the founder and president of Cumberland Investment Corp., an international tangible investment firm. He is a frequent contributor to Barron’s Financial Weekly, Wealth Magazine, and other publications.