Wednesday, October 7, 2009



It's not often a fast food restaurant closes, much less files for bankruptcy protection. But that's exactly what happened recently when the owner of 70 Jack In the Box fast food restaurants throughout northern and Central California suddenly shut down all his stores.

Abe Alizadeh of Kobra Associates Inc., who owns and operates the restaurants, closed all 70 of his restaurants in mid-September when his negotiations with his debtors broke down and he had to file bankruptcy.

Sadly, this story has been more of a common occurrence during the past year, with numerous businesses and individuals going through bankruptcy. It wasn't so long ago, however, that it seemed Congress had high hopes of dramatically decreasing the number of bankruptcy filings.

When Congress did a major revamp of the bankruptcy law in 2005, the goal was to decrease the number of bankruptcies each year by making it more difficult for people to file bankruptcy. A secondary goal was to force more people to repay their debts over time through a Chapter 13 plan rather than liquidating their debts through Chapter 7.

Four years later, it's clear that the new bankruptcy law has had very little success in achieving its goals. After an initial reduction in the number of filings, the number of people and businesses filing for bankruptcy protection has shot up and continues climbing. In 2008, there were approximately 1.1 million bankruptcy filings and in 2009, the number is likely to end up around 1.4 million bankruptcy filings -- a rate of 5,075 bankruptcy filings per business day.

At the same time, bankruptcy has become more complex and more expensive than it once was. Before the 2005 law, a bankruptcy filing averaged $1,000. Today the cost is twice that. People who are filing bankruptcy for the most part are doing so because they lost a job or suffered a major health problem. They have to file bankruptcy because they have no other option. Now they just have to hire a lawyer and pay a lot more than they did before the 2005 law came into effect.

Bankruptcy is not the only option for people in financial trouble however. There are numerous alternative options.

If you're contemplating bankruptcy, consider these options first:

1. Consider Bankruptcy alternatives. You may be better off with a debt renegotiation. An attorney with experience negotiating with debtors may be able to help you avoid bankruptcy by negotiating with your creditors, especially if you don't have a large number of creditors.

2. Negotiate with your Credit Card companies. Credit Card debt is unsecured debt, meaning credit card companies are last to get repaid if you declare bankruptcy. I have had success in the past with calling credit card companies for clients and settling their credit card debt for far less than is owed.

3. Consider whether you will even qualify for bankruptcy. If you make a decent salary but have high debt, you may only qualify for Chapter 13. However, if your debt is too high (over $336,690 in liquidated unsecured debt and secured debt of less than $1,010,650), you won't qualify for a Chapter 13. Consult an attorney to figure out if you will qualify.

4. Surrender your property. If you have a secured loan, you may try surrendering your property. For example, if you bought a $3,000 TV from Best Buy and financed the purchase, you can try calling Best Buy and seeing if they will take back the TV.

5. Do a short sale. If your house is under water and your mortgage payments are dragging you down, you may want to consider selling your house for less than it's worth. You will ultimately need to get the approval of your lenders before the sale goes through.

Before you embark on any of the above approaches, you should be sure to consult a competent attorney and accountant to make sure there aren’t any legal or tax consequences in your particular situation.

If you have questions about bankruptcy or debt renegotiation, feel free to contact John Corcoran for a free consultation at (415) 472-8100 x211 or jcorcoran@ptlegal.com.

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