I wasn’t sure whether this goes in GQ or IMHO, so I put it in GD.
Yesterday, I watched a documentary called Inside Job which records the actions of Wall Street and Washington which led to the current global recession and how those responsible walked away with not only billions in personal wealth, but cushy high-ranking government jobs as well.
One thing the documentary reminded me of was an article in the [Baltimore] City Paper a while back about a guy who flipped houses for a living with his wife. He would take out a half-million-dollar loan, buy a house, flip it, and attempt to sell it. However, several of the houses he bought failed to sell (and he was sued by several owners who did buy for shady business practices) and he ended up defaulting on many of the loans and declaring bankruptcy two or three times (I don’t remember exactly; this was years ago I read it). But between bankruptcies, he would take out more loans worth hundreds of thousands and keep trying to flip. Surely this guy’s personal credit history had to factor in, right?
Now, me as a member of the lower side of the middle class who has never declared bankruptcy would be hard-pressed to get a loan for $10,000 or even $5,000. And if I had declared bankruptcy in the past few years, the chances of that loan are pretty much nil, right?
What’s the difference between that house-flipping guy and me? How come banks continue to lend him millions even through bankruptcies? And how come he treated each bankruptcy like it was just another piece of business mail to send out? Bankruptcy would devastate me.
I believe you can only file for bankruptcy once every 7 years, so this is unlikely to be accurate.
And ‘between bankruptcies’, the creditors have 6+ years to collect, so your available credit usually goes up at first.
It’s possible the guy had been using corporate credit at first and then personal credit later or vice versa. Or he could have used business credit with different guarantors (perhaps his wife or friend/family/officer) or “hard money” loans. Maybe he filed bankruptcy individually at first and then later did everything under his wife.
A decade ago it was fairly easy to get large lines of business credit for anyone who had a few hundred bucks to incorporate and follow a few simple steps to build it up. In addition, there was a lot of easy credit for real estate and private sources of funding who would lend a lower % against an inflated appraisal. For example, you might structure things so you “bought” a house for $500,000 and you got a 60% loan for $300,000 and the other 200,000 was a down payment of equity that never existed. All kinds of ways to do stuff.
Not sure about the USA but in the UK one can be bankrupt and be discharged if you make an arrangement to pay a percentage of the debts by negotiation. The seven year thing is only of you don’t pay anything.
Yes, bankruptcy for the rich is different than for you or me.
They used to have more money.
You would need to see the details. He could have basically incorporated and taken the corporations into bankruptcy multiple times. Basically starting a brand new corporation after each bankruptcy. The whole point of corporations is to limit personal liability.