The cost of living in San Diego and the greater Southern California may affect your finances because you have to continually adapt to the rising cost of living, even if you are rich. When rich people want to put their financial affairs in order and track their money, a bankruptcy declaration helps them acquire a fresh start. However, this process is not as easy as it seems; you’ll have to engage a bankruptcy attorney to assist in your situation. San Diego Bankruptcy Attorney is always accessible to you, and our attorneys can help you to understand any issue concerning the rich and bankruptcy.
What is Bankruptcy?
Bankruptcy is the legal status of an individual or entity who cannot pay creditors’ debts. This doesn’t necessarily mean that one is broke, but rather, their assets aren’t enough to clear their debts. Mostly, the wealthy in society tend to take risks in investment decisions that end up flopping. Such circumstances make them lose their investment and can dent their financial situation.
It is not an easy decision to declare bankruptcy; but when financial situations become overwhelming even for some super-wealthy individuals, then bankruptcy declaration may be the only option.
In California, bankruptcy is imposed by a court order to those who deserve it. A bankruptcy lawyer helps you understand your options so that you can make an informed decision on the matter. Bankruptcy may be the only available option to save your property, prevent bank levies, and protect debtors from creditors and debt collection agencies’ constant phone calls for debt collection. However, there are different levels of bankruptcy laws, and the type of bankruptcy that people file for that may majorly depend on their business assets or wealth.
How a Bankruptcy Court Functions
Unlike most cases which are heard in criminal or civil courts, there is a special court set aside for bankruptcy cases. In California, judges handling bankruptcy cases have the authority to determine if a debtor is bankrupt or not. Though, some aspects of a bankruptcy case like the appointment of trustees to carry out administrative duties are not handled in the bankruptcy court.
If you file a request to be declared bankrupt, there is little or no interaction with the judge. Most of the times, the legal team appears before the jury. The only time you are required to appear in court is if the judge objects to the request.
Why Would a Wealthy Person Decide to File for Bankruptcy?
Business owners, famous celebrities, athletes and most people in the corporate world are often regarded as wealthy. However, poor decision-making and overspending can make them lose safe investments that they could use upon retirement.
The rich can find their way out of debt by negotiating debt repayment strategies since they have high incomes and great jobs. However, when they can’t settle these debts, and other relief efforts fail, they can turn into filing for bankruptcy.
Additionally, wealthy people often file for bankruptcy when their debts are too much and affect their lifestyles. Once they file a bankruptcy request, their debts and personal life are treated separately. These well-off individuals always want to invest in businesses which are worth more than their current investments, and result in credit. If for instance, the company they funded with the loan is not doing well and their debts become too much to handle, putting a toll on their financial affairs and lifestyle. By filing for bankruptcy, they can keep creditors away and ensure they retain their assets as they transition to more money-making ventures to repay the debts.
In other cases, some wealthy people, especially celebrities, live beyond their means. When their short-lived careers come to an end, maintaining their luxury homes and paying taxes for their property become a challenge. During such circumstances, they can decide to file for bankruptcy to avoid losing their wealth.
On the other hand, business owners can file for bankruptcy for a company doing poorly and not generating enough revenue to protect their personal property from creditors. In this case, they declare bankruptcy but continue to live their luxurious lives. If one has a regular annual income, they can comfortably enjoy their wealth and continue to make more money since the bankruptcy suit protects them from having to pay creditors. Even so, wealthy people who no longer have a steady flow of income risk losing some of their assets to liquidation.
Why is The Bankruptcy of The Rich and Famous Different From That of an Ordinary Individual?
Once you are declared bankrupt, most people assume that all your assets are gone, and to some extent that may be the case. This might be the reality for an ordinary person, but is an entirely different case for wealthy individuals.
The super-rich may be rooted in debt, but on filing for bankruptcy, they continue enjoying luxurious lifestyles. Being bankrupt for the rich is very different from being broke. When these high net worth individuals find themselves in a broke situation, they often make use of chapter 11 bankruptcy which is reserved for businesses that are suffering financial distress. Then, they can use chapter 11 on a debt repayment plan and pay some creditors at the expense of other debts.
If ordinary people or low earning individuals fail to pay a creditor, this leads to auctioning or even arrest, since most of them don’t know how and where to file for bankruptcy. Their bank accounts are garnished, and almost all their property is seized. However, the rich usually have the capability to seek professional advice and are easily able to file bankruptcy before matters get worse.
Although some of your assets might get liquidated, once a repayment schedule is made, you can retreat to your lifestyle. For ordinary people, bankruptcy often means being penniless forever. The only clause that saves them is chapter 7 bankruptcy. It helps them escape medical bills, credit card debts, and unsecured debts, and your income needs to be below average to avoid these terms.
Unlike the rich, people who file for the chapter 7 clause on bankruptcy may not be able even to pay the filing fee. On the other hand, the middle class can use chapter 13 bankruptcy. In this case, they can pay their debts in a supervised schedule, hence, scale down their spending habits.
Life after Bankruptcy For Wealthy Individuals
Regardless of the type of bankruptcy that you have filed for, there is a significant difference between the rich and the average person’s life after bankruptcy.
Current contacts and future earning potential
Wealthy people have huge networks who are likely to assist them after a financial crisis. They get an opportunity for a comeback since the talent and skills to make more money are not lost in the bankruptcy mess. Rebuilding reputation and financial loss might be difficult, but it eventually happens for them.
On the other hand, ordinary people are likely to lose their jobs and source of income after bankruptcy. Most of them may be rendered homeless and all their assets liquidated. To some extent, and they may be neglected by their families and friends when in need of financial assistance.
Bankruptcy provides the potential to start fresh
Despite all personal and social limitations, all types of bankruptcy give an opportunity for a fresh start financially. The laws of California requires an individual to seek financial counseling and education anytime they are declared bankrupt. During this period, they learn self-control and discipline in expenditure. This helps them to manage their finances better to avoid a setback in the future.
Most wealthy people have put boundaries between their business and personal financial affairs. Hence, they enjoy their normal lifestyles as they struggle to build back their businesses after filing for bankruptcy.
How do the Rich and Famous Manage to Stay Rich and Get Richer after Declaring Bankruptcy?
Most bankruptcies are filed when companies are struggling with debts, or an individual has a debt. There are two main ways in which wealthy individuals use bankruptcy to maintain their wealth;
- Filing for bankruptcy gives them a breathing space
Being declared bankrupt automatically stops all lawsuits and debt collection efforts by creditors. During this period, one can put in place strategies that will help them pay the debts and put their finances back on track. It is at such occasions that the rich resuscitate their businesses, or retreat to strategize and evade any looming bankruptcy.
- Provides a significant leeway to restructure loans
Chapter 11 bankruptcy, which usually applies to rich people in debt, allows these debtors to restructure their loan repayment plans to suit their income flow. This includes changing loan interest rates and maturity dates, making the deficits more manageable. Besides, filing for bankruptcy protects their assets from creditors. Thus, they don’t lose their luxurious lifestyles in the period when they are considered bankrupt; hence, few or no people can know they are bankrupt already.
Can Anyone be Declared Bankrupt?
It might be a strange occurrence to see wealthy individuals filing for bankruptcy suit more than once. However, when you look at the requirement for a bankruptcy filing, you wonder if you are too rich or too poor to file for one. But again, looking back at the kind of people who have filed for bankruptcy and the laws put in place, you discover that anyone can file for bankruptcy.
Most rich and famous people don’t declare personal bankruptcy but instead, file bankruptcy on behalf of their businesses. In that case, bankruptcy provides an opportunity to reorganize business finances while still in operation. One may seem too wealthy, but if one of their business investments is not doing well, they may end up declaring bankruptcy. Again, this doesn’t mean that they can’t meet their needs or support their lifestyles.
What Happens once you Fail a Bankruptcy Test?
People often assume that the rich cannot file for bankruptcy since the court puts a person through a rigorous test to determine if they qualify for their said chapter. However, even after failing the test you can still register for bankruptcy. This is because there exist many types of bankruptcy filings. If you don’t qualify for a chapter 7, then you can file for a chapter 13.
The test factor is only used for personal and not business debts. So, if you get an experienced legal advisor, it becomes easy to distinguish between the two.
Bankruptcy is always an option for the rich because they can afford to pay the filing fee and find experts to help them create appropriate financial arrangements. Therefore, they have an advantage in filing for the bankruptcy that best fits their needs and will give them the outcome they are seeking. Unfortunately, for the poor, filing for bankruptcy might not be an option because the filing fee needed may be too high. If you are in a financial crisis and consider filing for bankruptcy, it is essential to find out if you can afford to pay for the proceedings.
Why Filing for Bankruptcy is a Smart Decision Rich People Make
The biggest financial calamity is not always the immediate debts you need to pay but failure to cater for the future. Bankruptcy is a legal choice you make when your debt situation becomes disconsolate. Filing for bankruptcy is considered a debtor's last option. Bankruptcy might involve a long process, but it provides a quicker means of protection to wealthy individuals as they find their way forward financially. However, there are things you need to avoid before filing for bankruptcy
- Don’t run into new debts
If you plan to file for bankruptcy, you should avoid getting into more debt. The law dictates harsh penalties to defaulters, and in most cases, you can be charged with fraud. That debt remains in full and cannot get discharged during the bankruptcy proceedings.
- Avoid making unusual transactions
A secret that the wealthy people use before filing for their business or personal bankruptcy is to avoid unusual transactions of their finances. It is illogical to make large transactions, yet the court just declared you bankrupt. Trying to transfer money and assets to relatives can be very suspicious, and the court can require you to return the assets. Doing this is considered as financial fraud.
- Preserve your retirement funds
Most rich people opt to file for bankruptcy other than draining their retirement funds to pay debts. With this option, the debtor gets enough time to pay the debt without interfering with their retirement money. If you are a businessperson, it even becomes simpler, since the courts treat the business as a separate entity from your personal life, leaving you to enjoy life in secrecy. By keeping their own life separate from business affairs they protect their retirement benefits in case of a crisis.
- Don’t pay the creditors in full
Making a full payment to a particular creditor raises an alarm. It is assumed that the creditor is benefiting from the loss of others. This creates suspicion and may pose some legal challenges in the future. However, this does not mean that you stop paying your bills, but only pay in small chunks, or as per the guidelines in your suit.
- Provide accurate information
While filing for bankruptcy, the court requires you to disclose complete details of any debt you have and the assets you own. An attempt to conceal this information can lead to criminal charges and prevent your debts from being discharged. The worst scenario comes when some debtors attempt to transfer some of their assets to their close friends and families. If the court detects such fraud, you are automatically denied bankruptcy and even may be charged with fraud.
Who Suffers in Bankruptcy?
Rich people can typically afford to get bankrupt since they have the means to pay for it. On the other hand, being poor is frustrating especially when you want to file for bankruptcy. First, you have limited choices on the type of bankruptcy to register. Again, getting professional advice as well as the general filing prices may be financially draining, leaving you even more broke.
If you don’t qualify for chapter 13, then you have no other choice other than liquidating most of your assets to pay for the debts because chapter 7 bankruptcy law requires that. Even after qualifying for chapter 13 bankruptcy, the ordinary person has to follow the proposed payment plans for 3-5 years, and it could be quite challenging to distinguish between the disposable income and necessary living expenses.
Thus, having economic power plays a crucial role in the bankruptcy suit. The rich seem not to be as affected even after filing for bankruptcy. They can continue to live normally, while the typical individuals have to tone down their expenditure and make significant changes in their lifestyle.
It is essential to understand the category you lie in and how filing for bankruptcy will affect you and your family before deciding to declare yourself bankrupt.
Find a Bankruptcy Attorney Near Me
Filing for bankruptcy might be the only option to evade debts. As discussed previously, if you are rich then one of the best options you may have is to seek legal counsel. It is vital to find out your options and make well-informed decisions on your way forward. San Diego Bankruptcy Attorney is available and ready to help you understand the dynamics of bankruptcy and what it entails according to California laws. If you are in San Diego and the surrounding cities, then we got you covered. Contact our San Diego Bankruptcy Lawyer today at 619-488-6168 to get professional advice on everything concerning bankruptcy and your options.
