Bankrupt With Money In The Bank?

Tom had a small fire in his house, and the insurance company gave him $30,000. He has $25,000 left. Should he still go through with the bankruptcy?

QUESTION: Tom in Baltimore met with a bankruptcy attorney but hasn’t filed yet. He’s had a small fire in his house, and the insurance company didn’t want to get involved. After going to the state commissioner, they gave him $30,000. He has $25,000 left. Should he still go through with the bankruptcy?

ANSWER: No, it doesn’t sound to me like you’re bankrupt. If the question is can you get away with filing bankruptcy, the answer is yes. If the question is are you bankrupt, the answer is no. I can see a guy making $50,000 or $60,000 a year paying off $25,000 in debt pretty quickly after he used his $25,000 to clear up a bunch of the other. So what would I do if I were in your shoes? I would pay my car off, and then I would begin to work deals with the rest of the money and try to see who would settle some of this credit card debt. You might clear almost all of it by settlements at $.50 on the dollar. And then why would you have filed bankruptcy? It would have been foolish to. You can get a fresh start and trash your credit. Right now, your credit’s bad, but there’s a lot of difference between Chapter 7 bankruptcy and a $3,000 problem.

I think what happened was you were on one track, something happened, and you’re going to have to have the courage to get off that track because you have a different set of circumstances and a different set of decisions to make after the fire. You were on one track based on where you were. We could argue about whether that is good or not, but that’s not our reality for the day. For the day, it is plus $750 a month and plus $25,000 in your pocket, which makes you nowhere near bankrupt. You’ve just got to make the decision that you’re not.

Asking a bankruptcy attorney if you’re bankrupt is like asking a dog if it’s hungry. There are legitimate ethical bankruptcy attorneys, but I don’t think a legitimate ethical bankruptcy attorney would give you the advice you’re getting.

I understand how we got here, but the point is we’re here. Based on where we are today is the only way we need to make decisions—not based on where we used to be.