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The Only 3 Times Filing Bankruptcy Is Worth It

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Facing financial trouble, there are only three times when it makes sense to file bankruptcy.

None of them is labeled “last resort”.

Yet financial-advice gurus keep saying, bankruptcy should be your last resort.

That kind of thinking keeps people suffering too long, risking worse than financial embarrassment, and wasting money when repayment is a lost cause.

Putting emotions to the side, let’s walk through those three situations when filing bankruptcy is the right choice.

1.  You have a crisis

Foreclosure, repossession, or wage garnishment threaten the foundation of your finances.  Without a house, a car, and a paycheck, not much about day-to-day life is manageable.

Bankruptcy is may allow you to keep something that you would otherwise lose to creditors without bankruptcy.

Bankruptcy provides the “time-out” that stops all collection action.

The automatic stay triggered by filing bankruptcy has the force of law to make everyone stop in their tracks and move the action to bankruptcy court.

Sometimes, just getting served with a collection lawsuit seems like a crisis.

10 things to know about judgments

A lawsuit, after all,  is the precursor to a judgment that leads to garnishment, liens, or levies on your assets.

Service of the complaint isn’t really a crisis, but it’s a wake-up call that trouble looms ahead.

Usually, actually getting sued is often just a symptom of a much larger problem:  it’s not just the creditor who filed this suit, but the bunch of  other creditors who aren’t getting paid either.

Bankruptcy gets you a moment to consider the big picture, and provides the legal forgiveness of most unsecured debts.  It’s the long term effect of the discharge that is precious.

2.  You see the big picture

It doesn’t require a crisis to look at your balance sheet and realize you can’t dig your way out of a financial hole.

A lifetime of minimum payments on suffocating debt is no life.  Keep making minimum payments and the debt doesn’t even die of old age, because payments extend the statute of limitations.

Healthy finances include a reserve for emergencies and serious savings for your old age.  Keep feeding VISA and AMEX and you’ll be eating cat food at 70.

Bankruptcy exists because lawmakers understood that the economy is better off when people aren’t driven into the economic underground, and when families have the chance to be self sufficient.

It doesn’t matter how got you into debt: most bankruptcies result from events the individual didn’t control, like job loss, illness, or divorce.

Whether you’re in financial trouble because of bad luck or bad judgment, a fresh financial start is energizing.

3.  You’re worrying yourself sick

How we feel about owing money has a huge impact on physical and mental health.

It’s unfortunate in a way that our societal tendency to lionize those who doggedly pay off their debts:  the heroic story of slaying debts blinds us to the fact that stress kills.

True story of retired couple who made wrong choices about who to pay

And stress makes us stupid:  actually, measurably less likely to make good decisions going forward.  Collection pressures force too many folks make foolish choices about which creditor to pay.

So, when money worries interfere with sleep, digestion, work or relationships, it’s worth considering whether a bankruptcy discharge would improve the situation.

Even elders and the disabled, who are often legally protected from collection by non bankruptcy laws, decide to discharge debts so the bills are gone legally, for all time. And they enjoy peace at home.

Reasons to file overlap

These three reasons for filing bankruptcy aren’t mutually exclusive:  you can have a crisis and see the big picture.

But the idea that bankruptcy is only a last resort, when you’ve exhausted all other avenues, is just flat wrong.

Bankruptcy should not be taken lightly, but neither should it be the last option.

The sooner you look at the big picture provided by bankruptcy, the less likely you are to waste money trying to pay impossible debts or make catastrophic decisions like invading retirement or borrowing against your house to pay dischargeable debts.

More

Does debt settlement work?

The real causes of bankruptcy

Why bankruptcy seems scary

How To Write A Contract Without A Lawyer & Make It Stick

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meeting-handshake-pixabay_optEven in a world where people attempt almost any skilled task with the help of Google, YouTube, or Legal Zoom,  people continue to ask: is this contract legal?

They aren’t asking (usually) whether the subject matter of the contract is permitted by law.

They really want to know: will what I’ve written be enforceable.

What makes it a contract

There are no magic words or phrases that make a contract enforceable by a court.

Enforceability is not acquired by adding “whereas” or “notwithstanding“.

A contract need only establish that one party made a promise to the other for consideration. Consideration is legalese for money.  Or something else of value.

If I promise to join you for dinner next Friday, we have not created an enforceable contract, because there was no valuable consideration exchanged.  My promise was gratuitious.  You didn’t offer me anything but your good company over a meal.

If , on the other hand, I promise to speak at the event you’re planning, for which you’ll pay my  fee, then we have an enforceable contract.  I will appear and speak, and you will pay.

If either of us fails to do what we’ve promised, a court will attempt to give the injured party the benefit of the bargain.

So here are four tips on drafting a contract that does the job.

Contract1.  Write out the entire deal

The biggest failing of DIY contracts is incompleteness.  They don’t describe fully the performance that is promised.  They miss one of the essential terms:

  • who
  • what
  • where
  • when

If you hope that a judge will enforce a contract, it has to be written such that an absolute stranger to the deal, the judge, can read the contract and know what was agreed.

Too many self-drafted contracts don’t contain enough for a stranger to understand the deal.

Now, contracts with missing terms or ambiguities can be enforced.  The contract is still “legal”.  It’s just that there is a great risk that the missing terms as the judge fills them in don’t match the intent of the parties.

Enforcement of a fragmentary contract is far more expensive than had the contract been complete.

Enforcement of the unwritten terms becomes victim to what each party remembers but didn’t write down.

2. Flush out & write down assumptions

Often, the contracting parties each come to the table with a collection of assumptions about the arrangement.  And each party assumes that the other party shares their assumptions.

Only, until you articulate your assumptions, you can’t test whether you are both, really, on the same track.

The unwritten assumptions form part of the deal.  A good contract lays the assumption out on paper.  If they aren’t shared when you sit down to write the contract,  discussion or negotiation ensues.

The exercise of writing it out becomes as important as the writing itself.

3.  Explore the “what ifs”

Well crafted contracts provide for the rights of the parties if things don’t go just as hoped when the contract was formed.

What if

  • one party gets sick and performance is delayed
  • the materials aren’t available on schedule
  • the product doesn’t perform as anticipated

My rule of thumb is that the more money that is involved, or the more critical the contract is to your business, the more what ifs the contract should address.

If the consideration is $1000, it’s not worth extended negotiating or drafting to deal with remote possibilities.  If it’s a $100,000, it’s worth more to lay out the details.

4.  Provide for attorney’s fees

If you expect to enforce the contract in court if it’s breached, then your contract should provide that the injured party can collect its attorneys fees from the other in addition to any other damages.

Why?

Because the American Rule about attorneys fees says that each party pays their own attorney, win or lose.  That is, unless the contract, or a statute, says differently.

Without a provision that grants the prevailing party the attorneys fees necessary to enforce the contract, it may simply be too expensive to go to court.  Or, the cost of representation may consume the damage award.

Write on

With these principles in mind, you can draft a contract that is certain and enforceable.  Strive for clarity and completeness.

And if this seem too daunting, take your draft to an attorney and pay only for review and repair of your document.

Because, at the end of the day, a contract only works if you can enforce it.

More

How you sign your name to your corporation’s contract

Benefits of incorporating not what you think

Does your business partnership have a prenup?

Image courtesy of Pixabay and Nemo.

Don’t Fall For Your Mortgage Lender’s Insurance

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lender home insuranceIf the mortgage company provides your property insurance, you are not in good hands.

No matter how much time it saves you.

Your lender is not a good neighbor when it comes to insurance.

When your insurance lapses

Somehow my client let her homeowners insurance lapse.  She wasn’t worried about it, she told me, because the mortgage lender had gotten insurance on her home.

She was content, she said, to let the lender take care of that complication in her life.

Only the complication wasn’t being “taken care of” because the lender’s force-placed insurance didn’t protect my client or her interest in her home.

Lender protects only themselves

Normally, you pick out an insurance carrier to insure your home and to protect yourself against the risks that property owners have.

Your mortgage requires that you insure the property and name the lender as an additional insured.  That way, if the house, which is part of the collateral for the loan, burns down, the lender gets all or part of the insurance proceeds to make up for the loss of the structure.

Your mortgage also provides that if you don’t get insurance to protect the lender, they can get it for you, and you’ll have to pay for it.

But here’s the catch: force placed insurance  protects only the lender up to the amount of its loan.

Your equity in the property is not covered, nor are you insured against personal injury claims related to the  property.

Not to mention the fact that force-placed insurance is very expensive.

So, my client who thought she’d off-loaded the job of providing insurance, had no protection from the lender’s insurance.  All she had was the bill for three times what she was paying before, for half the coverage.

Homeowners exposed to injury liability

Homeowner’s insurance usually protects far more than the house on the lot.  It protects you from claims by visitors to your property for injuries they suffer on your property.

And other, quite unexpected stuff.

Early in my legal career, I found that my client’s homeowner’s policy covered the damages his son caused spinning wheelies in his dad’s car on the high school football field in the dark of night.

Our legal system assigns liability to property owners for injuries that occur on the property, often without regard to fault,.  For that reason,  I advise that people walking away from homes or investment property continue to pay for liability insurance even if they aren’t paying the mortgage and are indifferent if the property burns down.

Take insurance matters into your own hands and be genuinely protected.

More

Little known step that’s critical before listing house for sale

Your house needs an annual check up

How California homesteads work

Your home provides a poor retirement

Image courtesy of Artotem 

Get A Voodoo Discharge Without Filing Bankruptcy

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One of the great mysteries of debtor/creditor law is the community property discharge in bankruptcy.

When only one spouse files bankruptcy in a community property state like California, the non filing spouse reaps bunches of benefits that creditors can’t imagine.

Benefits that aren’t explicitly described in books about bankruptcy or understood by creditors.

Those benefits start with the non filer’s wages being absolutely protected after bankruptcy from that person’s debts existing when the case was filed.

How can that be? frustrated creditors shriek.

It’s community property law, is the reply.

The   phantom discharge works like this.

When one spouse files bankruptcy

File bankruptcy in a community property state and all of a couple’s community property becomes property of the estate.  And, all of the creditors who have claims that can be collected from the community property are creditors in the bankruptcy case.

So, if Jane files bankruptcy, and her husband Joe does not join the case, Joe’s creditors who have a claim on their community property can participate in the case.

All creditors of either spouse can collect their claim from community property.

I say “can“, but that’s a stretch.  Joe’s creditor doesn’t really get a choice about whether they are affected  by Jane’s bankruptcy.  If they get notice of the bankruptcy filing, they are bound by the outcome of the case.

At the end of Jane’s bankruptcy, her discharge eliminates all of  her liability for her dischargeable debts.  And the discharge eliminates any claim that listed creditors of Joe have to the couple’s community property.

Jane’s discharge protects not only the couple’s community property that exists when the bankruptcy is filed.  It also protects any community property that they acquire any time in the future.

So, Joe’s creditors are really hamstrung.  Their claims can only be collected in the future from Joe’s separate property.

Magic.

Good magic if you are Joe;  bad magic if you are Joe’s creditor.

What the discharge doesn’t do

While the community property discharge limits what Joe’s creditors can do, the discharge does not wipe out Joe’s personal liability for his debts.

He still owes the debts.  Those debts can be collected from any separate property he has.  That separate property might be

  • assets he had before marriage;
  •  wealth he inherits; or
  • gifts he receives.

If Joe doesn’t pay on the debts for which he is liable, his creditors can still sue him.

They can get a judgment.  They can haul him in for a debtor’s examination.

They can report the debt as delinquent.

They just can’t levy, lien or garnish his wages or other assets he and Jane acquire as community property.

It can get messy.

Since it’s only the community property of the marriage that is protected by Jane’s discharge, the protection doesn’t survive the end of the marriage, either.

If Joe is widowed or divorces, his earnings are separate property.

A nasty quirk is that any community property that Joe acquires in a new marriage is liable for the debts he has that preexist the new relationship.  Ouch.

Reasons not to file bankruptcy

Often, one spouse opts not to join in a bankruptcy because of employment concerns, either a position where bankruptcy seems inconsistent with the job description.

Or the debts in that spouse’s name are fewer.

Or they hope to hold on to a credit card that is important for work.

Or the couple hopes to use the non filer’s credit for some important purpose in the near term.

The household finances will be greatly improved by eliminating the creditors who can garnish the community property.

Each person is supposed to have their own file with the credit reporting agencies.  Thus a bankruptcy of your spouse should only be noted on your credit report if you had joint debt.

The take-away here is that the post bankruptcy terrain for a married couple where only one files for bankruptcy is uneven.

How well the community property discharge works depends on what the non filer hoped to achieve by not filing.

More on community property

Principles of  California community property

Dates, mates and debt

Bankruptcy and the division of community property in divorce

Bankruptcy terms, simplified

Image courtesy of wikimedia.

$7000 Off The Price Of The Car In Chapter 13

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When the client finally got me a copy of the car finance contract, it saved them $7000 on the price of the car.

They’d tried just giving me the monthly statement.

But that statement on the car loan didn’t show the bombshell that I found when I finally examined the contract:

Included in the loan for the new car was the unpaid balance on their old trade in!

In bankruptcy-speak, that’s negative equity, and negative equity isn’t entitled to payment in full in Chapter 13.

So in our Chapter 13 plan, we can reduce what they  pay for the car by the $7000 of the loan that paid off the trade-in.  It really was worth the effort to find the contract.

Sleuthing in bankruptcy

I know, the amount of paper a diligent bankruptcy lawyer wants from you is daunting.

There’s loan documents, deeds, IRA statements, bank balances, insurance policies, pay stubs, and tax returns.

It can seem overwhelming and sometimes pointless.  I get it.

Some of what we’re gathering is defensive:  to show that the information in your bankruptcy schedules is correct.  After all, disclosure is the price of getting a bankruptcy discharge.

But some of the paper we need supports our offense:  having found the portion of the car loan that related to the trade in rather than the new car, we can slice $7000 off of the debt.

Same thing about getting payroll tax returns.  Not everything a small-business employer owes the IRS is a must-pay.  But we’ve got to get the right paper to figure that out.

Just believe that we are asking for documents for a real reason.  Like reducing the loan by $7000.

Car loans in bankruptcy

The auto side of this story is worth the telling, too.  The ability to manipulate car loans is one of the appealing features of Chapter 13.

Only purchase-money:  After the 2005 bankruptcy amendments, car lenders got a windfall on cars purchased in the three years, more or less, before the bankruptcy.  “Reform” entitled car lenders to more than their collateral was worth. (The lenders had a bigger lobbying budget than consumers when the law was passed).

But the 9th Circuit judges have held that the negative-equity part of a car finance transaction isn’t part of the purchase money loan.  Thus we can strip out the  payoff of the trade-in from the loan balance that must be paid.

Likewise, a debtor can reject gap insurance, maintenance contracts and other add-ons that aren’t part of the value of the car itself.

Interest rate changes:  Regardless of when a car loan was made, Chapter 13 can alter the interest rate that the lender gets on the loan through Chapter 13.  So the 10-15% car loan may pay something closer to 4-5% under the Chapter 13 plan.

Term extended:  A Chapter 13 plan can extend the remaining term of a car loan to match the length of the bankruptcy case.  Spread over more months, the monthly bite of a car loan in your budget can be reduced.

And that’s just a part of the reason that I love Chapter 13.

More

Car loans in Chapter 7

Expert tips on buying a car

Speak fluent bankruptcy

 

Is Home Equity A Substitute For Retirement Savings

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My house is my retirement plan.

If I had a dollar for every time a client said that, I could retire today.

But that approach to funding your old age only works if….

Sell your house to retire

The value in your house makes your balance sheet strong, but doesn’t put food on the table or gas in the car.

That home equity is illiquid.  You can’t write a check against it for the other necessities of life.

To get at that equity, you need to sell the house, or  borrow against it.

A traditional loan requires that you have cash to cover the monthly loan payments.  But hey, you’re not working.  Where does that money come from?

Reverse mortgage

The reverse mortgage was invented to allow seniors who can’t make monthly payments on a conventional loan to access the equity in their home.

But the fact that a reverse mortgage has no monthly payments does not mean that it’s cost free.

No, the interest on the money borrowed accumulates over the life of the borrower.  And the unpaid interest itself earns interest.  The cost is steep.

Dangers in reverse mortgages

Reverse mortgages top list of older consumer complaints

And a condition of a reverse mortgage is that you keep up insurance and property taxes.

Real property has carrying costs

Whether encumbered or owned free and clear, real property has its own set of expenses.

  • Hazard insurance,
  • property taxes,
  • repair and upkeep.

Gotta have cash for those things.  The average Social Security check is about $1300.

Where do you live if you sell

If you’ve benefited from rising home values over your lifetime as a homeowner, the cost to replace the house you’re selling has risen as well.

And buying less house in your community still has the carrying costs we talked about above.

Or you rent.  So housing still has a cost.

Or you move out of the community you live in to somewhere where your sale proceeds go further.

You move away from friends and support systems.  Or maybe you move back to somewhere where you have a support system.  It can work both ways.

Taxes shrink your equity

Capital gain taxes are triggered if you sell your home.  Current tax law excludes from taxable income $250,000 in gain for a single person and $500,000 for a married couple. (Watch for changes, here).

So taxation will deplete your sales proceeds only if you have experienced a lot of appreciation over your lifetime.

But if you’re sitting on lots and lots of equity, count on it shrinking if you sell.

Don’t hide behind your house

There are no easy or universal answers here.  Our lives are longer and our preparation for old age is woefully incomplete.

For too many people I meet, the “home is my retirement account” is an excuse for overpaying for housing at the expense of retirement savings.  It provides cover for failure to set aside any money now.

Diversification of your retirement assets is clearly best.  Have cash and home equity as you age.

But however you are situated, give some clear thought as to how you fund those decades of life when you aren’t working.

More

Do California seniors need bankruptcy

What it costs to retire here

California homestead and senior debt

Image © Fotolia

Ordinary Heroes Deliver Second Chances With Bankruptcy

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Guest author Bob Schuman on the good that bankruptcy does.

I’m a mortgage broker.

In that role, I see close up the immense relief that a homeowner feels when they file Chapter 13.

They are no longer forced to deal with collection calls and a multitude of letters that are aggressive and intimidating, threatening to take their car, foreclose on their home, call them at work, or knock on their door at dinnertime.

No longer do they need to feel helpless, to not know if the threats and intimidation from creditors are real or made up. To not know your rights, to live with that ever-present fear at all times of impending embarrassment. To walk into a bank not knowing if they will laugh at you. To feel the ever-present shame, the most insidious off all our emotions, that can permeate us to our very core.

Stress has a negative impact on marriages, on a parent’s relationship with their children, co-workers, friends and family. It can subtly and not so subtly impact our every relationship and action. It permeates every aspect of a debtor’s lives.

And bankruptcy provides relief.

Lawyers deliver relief

Bankruptcy lawyers are the vehicle for providing that relief.

Brendon Burchard’s best selling book High Performance Habits reported on research that found that the highest performing professionals hold in their thoughts and remember, all the ways their work contributes to the well being of others: Their work is of service to something greater and makes a difference.

So when a debtor sits in front of you, know that the work you are about to perform is truly a godsend to these people.

They finally have someone in their corner who knows the law, someone knows what creditors can and cannot do.

Someone who can silence the outrageous and obnoxious phone calls and letters that rob them of any peace of mind they may still cling to during an incredibly difficult and emotional time.

Second chances

For bankruptcy attorneys reading this, and for trustees and their staff who care about ordinary people, what you do is a blessing for these families.

As a country, we pride ourselves on second chances – on redemption, and you are the facilitators of that redemption.

With your help, a mother or father can enjoy their child’s soccer game without fear that a tow truck might show up at the game and take their car, or show up at their door when they have guests or a myriad of other embarrassing situations.

Sometimes, you actually save a life.

A well-respected bankruptcy attorney and friend tells the story of a client turning over to her the cyanide pill he was planning on using before the attorney showed him  a way out, a path to end the nightmare successfully.

So as you drive in to work tomorrow, remember, that the work you do brings these people back to life, helping their family, their children, their relationships.

The work you do is a godsend.

Embrace that, hold onto that thought, know that you are fighting the good fight.

Let it inspire you. There is something very rewarding about being committed to a cause bigger than ourselves.

My hat’s off to you for the work you do and the difference you make.

Bob Schuman is the owner and managing broker of Network Financial Group since 1987. He was awarded  “Member of the Order of Protectors of Consumer Debtors”  by  NACBA the country’s only exclusively consumer lawyer organization. Having worked with thousands of clients over the last 30 years, Bob continues to consult with homeowners and their professionals, providing financing for array of challenging circumstances including bankruptcy and foreclosure. Email Bob at RobertATrealestateloans.expert.

California Garnishment Now Provides Greater Protection Of Wages

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california garnishment lawWorkers making close to the California minimum wage got additional protection from wage garnishments under a change in the law effective in 2013.

With the annual increases in the state minimum wage, in 2019 California law now protects an employee’s weekly net wages up to 40 times the state minimum wage, currently $11 to $12 per hour.

The prior formula  limiting a judgment creditor to 25% of a debtor’s after tax wages remains.  But the amended law caps a wage garnishment at the lesser of the two calculations.

A judgment creditor isn’t absolutely entitled to the amount figured under these formulas, however.

If the judgment being collected is for a debt other than support, a judgment debtor can seek a reduction in the amount of the  garnishment from each paycheck to the extent necessary for his support.  CCP 706.051.

Garnished-now what?

The only run of the mill creditor who can garnish your wages is a creditor who has already sued you and won a judgment.  That judgment entitles the creditor to levy bank accounts and garnish wages for 10 years or until the judgment is paid in full.  More about judgments.

The judgment accrues interest at 10% simple interest per year.

Two questions arise:

1.  Can you meet your current living expenses on the money left after a garnishment?

2.  Is this judgment just one part of a bigger debt problem?

The dangers of doing nothing are greater than just the other bills that don’t get paid while your wages are garnished.

Too often, the reduction in available cash puts your car or housing payments in jeopardy.  And, it probably pays a debt that is dischargeable in bankruptcy, as most unsecured debts are, while non dischargeable debts like taxes, student loans or child support go unpaid.

Here are some ideas on who to pay with the money remaining.

Your wage garnishment action items

See an experienced bankruptcy lawyer.  You want to know two things.

  • Can you petition the state court for a smaller garnishment? and,
  • Does bankruptcy make sense in light of the bigger picture of your income and expenses?

A bankruptcy will stop a wage garnishment. And, you may be able to recover the money taken from your check from the creditor as a preference.

If bankruptcy is an appropriate response, there is no point in paying the judgment creditor for another pay period.  Pick up the phone and get some advice.

More

How to interview a bankruptcy lawyer

Wage garnishment survival guide

   Bankruptcy’s effect on judgments

3 Things That Prevent You From Getting Out Of Debt

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It’s not a bad economy, poor budgeting skills, or credit card interest that keep you from getting out of debt.

It’s emotions, not reasons, keep people from filing bankruptcy and starting fresh.

Even if Reason says that you’ll never pay your debts off in the usual way.

Reason also says that paying old debt steals from essential current and future needs.

But emotions stand between you and a rational decision that repayment isn’t possible and that bankruptcy is the solution.

It’s not as sexy as the seven deadly sins, but the Emotions Trio keep my clients mired in debt long after logic says “start over”.

Meet Fear, Stubbornness, and Pride.   They stand between you and freedom from old debt.

Fear

Fear of the unknown probably kept our primitive ancestors alive.  If you didn’t understand it, it made sense to fear it.

In the age of the internet when nothing remains unknown, it’s ironic that fear continues to keep people from filing bankruptcy.

  • People fear life in a consumer society without credit.
  • They fear being branded as a failure.
  • They fear the judgment of others about how they got in this mess.

Some of this fear is rooted in bad information that circulates;.  Some of that bad information is deliberately planted by those who profit as long as you avoid the bankruptcy remedy.

Good bankruptcy information found at Bankruptcy in Brief.

I’m with Franklin Roosevelt: all we have to fear is fear itself.

Stubbornness

It’s hard to knock stubbornness.   After all, stubbornness, the drive to finish what you started, is often a virtue.

But stubbornness regardless of the facts is not admirable.

I’m talking about the attitude that says “these are my debts, and by d***n, I’ll get them paid”.

Honorable, but not rational.

See how long it takes to pay off a modest credit card balance by paying the monthly minimum.

Life is about choices, and the choice to keep chipping away at a Mt.Rushmore of debt usually  means that some other, real and important, need goes unmet. The greatest of these neglected choices, in my world, is retirement savings.

Staying in debt means living with stress, or dying of stress.

Pride

I’m not the kind of person that files bankruptcy, I often hear.

Well, what kind of person is it that files bankruptcy?

It’s

  • people who’ve gotten sick, even with health insurance;
  • people who’ve divorced;
  • people who’ve lost jobs; and
  • people who got suckered into believing that the marvels of a consumer society were available to everyone.

Pride won’t put food on the table in your old age.  It won’t pay for your prescriptions or your kids’ college.

Bankruptcy is not a moral failing; it’s a legal solution to an economic problem.

Look around at the celebrities and the iconic corporations who have all filed for bankruptcy relief.  Do we think that they are lesser people for starting over? Not usually.

Walt Disney, one of our  more famous bankruptcy debtors, is an American hero.

Perhaps the saddest things I see as a bankruptcy lawyer are people who struggled far too long with intractable debt, making more bad choices before getting out from under.

It doesn’t have to be so.

More

Debt makes you stupid

Interviewing a bankruptcy lawyer

Is it better to just make minimum payments

Sign Your Corporation’s Name So You Aren’t On The Hook

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John_Hancock_Signature-wikimedia-public-domain

John Hancock knew how to sign his name- so large that King George could read it without his glasses.

But most small business folks who do business as a corporation are clueless when it comes to signing contracts on behalf of their corporation.

When they sign their name, without more, on the line that says “Owner”, they may have made themselves personally liable for the obligations in the contract.

Signing just your name likely defeats the very reason that you incorporated your business.  You’ve just put yourself personally on the hook.Fish-hook-green background-wikimedia-cropped

Why your business is a corporation

In the law, a corporation is a legal person, separate from the individuals or other entities who own its stock.  Despite how invested, financially and emotionally,  you are in your business, you and the business are really two separate entities.

The invention of the corporation made it possible for business people to limit their risk in an incorporated business to the amount they paid for their stock.  The creditors of the corporation couldn’t collect their claims from the stock holder.

That ability to limit your risk, to keep your business creditors away from your personal assets, probably figured large in your decision to incorporate.

How a corporation gets things done

Because a corporation is a “person” without any fleshy substance, it needs people to act for it.

Those people are its employees, managers, or its officers.  They can wield a pen and sign for the corporation.

A signature on a contract serves as proof that the signatories take on the benefits and burdens described in the written documents.  Physically, a real, live person has to sign.

But how do you sign for the corporation?

Acting for the corporation

Let’s assume that the document in question is an order for the design of a new website for your business and a year’s worth of maintenance.

You are the stockholder, president, and the manager of  My Business, Inc.  (For most of us small business folks, we are also the secretary, janitor, bookkeeper for the business as well.)

If this deal goes south, you don’t want the service provider suing you, liening your house, and garnishing your wages.  This is a corporate deal.

So, here’s how you sign the contract on behalf of your corporation:

MY BUSINESS, INC.

___________________

By  Your Name, President

You sign your name as you always do, but in your capacity as an agent of the corporation.  

Contracts don’t have to be signed by the president.  They can be signed by any party the corporation has authorized to act for it.  You could be, just as legally, the vice president, the CFO, or the general manager.

By adding your role in the corporation, you have signaled that the party to the agreement is the corporation, not you personally.  The entity making the promise to pay is the corporation, My Business, Inc.

Your signature as a representative of the corporation doesn’t put you personally on the hook for payment.

Good work, Mr. President!

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