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The other day at work I ate my lunch and then packed up my things and headed to my local US District Courthouse for a bankruptcy hearing. Obviously I can’t go into specifics about why I was there but while I was sitting in the courtroom waiting for my turn to speak I got to witness about 10 people go through bankruptcy.
I was honestly quite shocked as to how simple of a process that it was and how quickly they went through them. The debtor was asked a few questions and then sent on their way. Most were pretty cut and dry and not terribly complicated. There were a few that were quite a bit more interesting however.
There were several common denominators among most of these people. I truly believe that there are lessons in life everywhere and some of the best lessons we can learn are from other’s experiences.
Money does not care who you are, what you look like or how old you are. Anybody can make money, anyone can spend it and anyone can lose it all. I saw everything from a 20-some year old single guy to a married 40-something couple to an older lady that could have been my grandmother. Some of the stories were sad and a few I just sat there shaking my head.
Like I said, there were some that simply walked up there, answered a few simple questions and then walked away. I will highlight some of the ones that were a little more interesting….
Second time’s a charm?
The first case study was a 40-50ish married couple. They answered the standard questions and then they were asked more detailed questions about their business that essentially bankrupted them. Apparently, they bought a turn-key business from a guy and then leased the building that the business was housed in from said guy. For whatever reason, their business failed, they couldn’t make the lease payments and the landlord was now suing them.
As the questioning continued I learned that this was the second time in 10 years that they had filed bankruptcy. Not a good trend.
Not only was this the second time but guess how they went bankrupt the first time???
That’s right, they bought a business. I have no idea what the terms were of the business deal and how it went wrong but there is one lesson that I think we can all take away from this. First let me say this.
I love entrepreneurship!
Love, love, love it. To me, it is one of the greatest things about America. I love the fact that someone can literally start a business at any moment whenever they choose. They can hop in their car and start driving for Uber, they can buy and sell things on Craigslist or Ebay, or they can start a blog! It is so simple to start a business in America.
Often, we hear the rags to riches stories. Stories about people pouring all of their money into their business, liquidating all of their retirement savings, living in their car and chasing their dream. It sounds glorious and heroic. But in all reality, those stories are few and far between. For every rags to riches story out there I guarantee there are 1,000 train wrecks like the one I witnessed there in the courtroom.
There are very few instances when I would recommend liquidating your retirement accounts in order to buy a business. Actually, there are no instances I would recommend that. Not wise.
What I would recommend however is staying at your full-time job and starting a side business. To me this is the absolute best way to start your own business.
I have no idea of the particulars of the business that this couple owned but it sounds like it was their only source of income. It was a make it or break it kind of deal. Apparently this was the second time that they broke it. If they had kept a full-time job with a steady paycheck and slowly worked themselves in to this business they would have had something to fall back on when it failed. Instead, they are starting all over.
Related: Is your emergency fund big enough?
The Love Triangle
I’m not 100% sure that there is a lesson to be learned with this next case study except to get your personal life in order. This one was a little different.
Three people walked into the courtroom. Two men and a woman all probably in their upper 30’s. They looked very normal, healthy and employable. Nothing out of the ordinary.
I thought that maybe these were three separate cases but boy was I wrong. When their names were called they all three walked up one after another to give their testimony. Two of them were still legally married. The other dude was the lover on the side. One of the strangest things about this whole setup was that all three of them seemed to be getting along great and in a terrific mood. They almost seemed happy to be there.
The husband testified first and was asked about some of his assets. He owned a $350k home that he had only paid $300k for a few years prior. He also stated that he was unemployed.
Now, just so you know, in my neck of the woods a $350k home is a very nice home generally. Most likely a newer build with 2,500 plus square feet.
The wife gave the exact same testimony. She was unemployed as well….
Then lover boy was asked several questions. Apparently he had made some pretty decent money in the past year because he said that he had an almost $10,000 tax return coming his way. Amazingly though, he was also unemployed.
For the casual observer it was hard to figure out exactly what was going on here. To me, it was very odd (maybe convenient?) that all three of these people were unemployed. I live in an area of the country that has one of the lowest unemployment rates. I see ads and signs for jobs all the time. Pretty much around here, if you want to work there is a job for you.
The personal issues that these folks were facing obviously had impacted their finances in one way or another. For me though the lesson I took away was how imperative it is to buy a house that is below your means.
It’s pretty hard to pay a mortgage on a $350k house when both of you are unemployed. The most common standard I see for buying a house is to make sure that your monthly payment (mortgage, taxes and insurance) is less than 25% of your take home pay. That’s a good standard for most people.
But for those of us that having bigger goals in mind like say early retirement…. I think that a more foolproof standard is to buy a house that you could still afford if one of you lost your job.
Housing in America has grown out of control in my opinion. They don’t build “starter homes” in my area anymore. If it is a new home, it is a minimum of 2,000 square feet and there aren’t even very many of those. Everyone thinks they have to have a huge home with all the latest updates. Do you really “need” that big house? It comes with a hefty price tag.
Take care of your family
The last person that I saw take bankruptcy that really struck a chord with me was an 80 some year old woman who was recently widowed. I didn’t catch a lot of what was said because she didn’t speak very loudly but the one thing that she was most worried about was losing her home that she had lived in for many years.
This lady reminded me of my Grandma and my heart hurt for her.
I fully believe that you don’t just stumble into bankruptcy. There is almost always a series of bad decisions that leads to this type of financial ruin. I didn’t completely understand her story but the big take away for me was that she didn’t have any family members there supporting her or assisting her.
One of the biggest motivators for getting my financial act together has always been my family. I want to have the means to help my family when and if they need it. It would break my heart to see my own parents go through something like that and not be able to help them in any way or have helped them avoid the situation altogether to begin with.
Don’t throw good money after bad
I know there are times when throwing money at a situation does not help. Sometimes it can even exacerbate the issue. Don’t be an enabler.
But there are also times when people have just got themselves in a bad situation and truly regret the decision that they have made and want to change. Those are the type of people that I like to help.
My afternoon in bankruptcy court was quite an experience. If you ever need a first-hand lesson in learning what not to do with your finances I would recommend sitting in on bankruptcy hearings for an hour. It will give you an entirely new perspective.
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