How can millionaires file bankruptcy?

Millionaire Files for Bankruptcy?

As an Omaha Bankruptcy Attorney, I am often asked how millionaires and huge corporations can get away with filing for bankruptcy. I can only say that the Bankruptcy Code does not discriminate based on wealth. I believe there is some kind of misconception that someone who files for bankruptcy is somehow relieved of liability without any negative effects. This is far from the truth.

With Bankruptcy, you have to give up something to get something

Chapter 7 bankruptcy calls for a complete liquidation of property of the debtor with few exemptions for the necessaries of life. For example, Ted Baer, an Omaha resident known mostly as the heir to the Brandies fortune, recently filed for chapter 7 bankruptcy in Nebraska. According to Mr. Baer’s bankruptcy filings, his debt of approximately $10-$50 million was a result of bad business deals. Mr. Baer can expect to see some of his personal property to be claimed and liquidated as cash for creditors. First, he reports cash and bank account holdings of approximately $17,000.00 that would be taken for the benefit of creditors. Jewelry and watches valued at $83,000.00 would likely be claimed as well. Mr. Baer has listed his household goods at a value of $3,000-$8,000. Generally, household goods are exempt up to $3,000, however, bankruptcy trustees normally do not claim household goods as being too burdensome to administer. This case may prove differently as an auction may be able to bring a good amount of money for the creditors. Mr. Baer’s interest in his residence and vehicles will likely be retained because the value of the property would not be enough to pay the amount of security on those pieces of property. Lastly, Mr. Baer may or may not be able to keep his retirement accounts listed as having a value of approximately $250,000.00. Nebraska law allows retirement accounts to be exempt in bankruptcy up to the point that is reasonable for a debtor based upon his age. So an older debtor about to retire will likely be allowed to retain a large retirement account as opposed to someone young with many years to recover.

Unfortunately for Mr. Baer, his mother’s passing comes at a poor time under the bankruptcy code. 11 U.S.C. Sec. 541(a)(5) states in part that property of the bankruptcy estate includes any interest in property that would have been property of the estate if such interest had been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date. Essentially this means that the bankruptcy trustee can claim any inheritance that Mr. Baer is entitled to as property of the estate to liquidate for the benefit of creditors.

This example shows how wealthy debtors will face a dramatic change in lifestyle by filing for bankruptcy. Mr. Baer will have a lot of money claimed for creditors. It will not be the full millions that he owes, but he is not being given relief under the bankruptcy code without some negative effects.

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