At least once a week I meet with a small business owner who due to one or two bad business decisions has not only caused his or her's business to fail but has also pushed the owner into personal bankruptcy. Many of these businesses have great people behind them and offer needed services but due to a lack of pre-planning the business fails and drags everyone associated down with it.
In my former life before starting my bankruptcy practice I practiced corporate law and assisted companies with both their formation and their day to day transactions.
For anyone thinking about starting a business I would offer the following tips:
1. Think long and hard if you REALLY need that expensive office space when you just getting started. There are so many great virtual office space companies in Atlanta and the surrounding area that you can have a receptionist, conference room and professional appearance for under $100 per month. These leases also tend to be on a month to month basis so that if things do go south you can terminate your lease quickly.
For those of you who must find commercial space for your business remember that in this current market you have a lot of leverage in terms of what you can negotiate. Although most commercial landlords will TRY to have you personal guarantee the lease you should never do this and instead sign on behalf of your company. In the event that business does tank the landlord will not be able to sue you personally.
2. Make sure that you have funds set aside to run your business without any profit for AT LEAST 6 months. Optimism when planning your revenue stream is not a good idea. You need to be prepared for a worst case scenario to ensure that you will not be forced to dip into your personal lines of credit and credit cards to keep your new business afloat. I cannot tell you the countless clients I have filed bankruptcy for that funded their start-up on their credit cards and then when the business failed could not just walk away from the business but had to declare personal bankruptcy.
3. If you have a business partner or a group of partner you need to make sure that you are involved in ALL decisions regarding the company and that management functions are WELL defined. One of the common characteristics that I see in many small business related bankruptcies is that multiple law suits and allegations have arisen among the partners because the money is gone and someone is left holding the bag in the way of a personal guarantee on debt.
It usually appears to be a combination of poor pre-planning and naievity of the other partner or partners. There really is no such thing as a "silent" partner because if you are going to protect your name and your investment you need to know the day to day happenings of your business.
A good operating agreement is also a pre-requisite before entering into any venture to ensure that everything is in writing so that there is no confusion on duties and responsibilities.
4. Make sure that you own your intellectual property. There is nothing worse than launching your business and it starts making money and you get slapped with an infringement lawsuit. Not only is this REALLY expensive but it also keeps you away from running your business.
5. Don't ignore lawsuits! Make sure that you reach out to friends and business associates and get the name of a good litigation attorney to turn to when you are facing any type of business dispute. When establishing a business plan you should always allocate for legal expenses.
6. If you have employees or sell products make sure that are complying with all state agencies for taxing and reporting. Many of my small business clients in their excitement to start a business fail to make sure that they are reporting to the required state agencies. After years of non-payment these fees and penalties can be huge and many are not dischargeable in a bankruptcy and must be paid back from your pocket. Establish good business habits from the start to avoid this headache.
Starting a business can be the fruition of a long awaited dream. Just make sure that your dream does not turn into a nightmare and take the proper steps to protect yourself.
Monday, February 8, 2010
Monday, January 11, 2010
Pay Day Loans: NEVER a good idea...
One of the most frequent creditors that I notice on many of my clients petitions is the payday loan company. More often than not, my clients tell me how they are unable to pay the loan and how the balance has skyrocketed out of control.
Payday loans, also known as cash advance loans, check advance loans, postdated check loans, or deferred-deposit check loans, may seem like an easy solution to a temporary cash shortage, but for many people, payday loans are the beginning of a vicious cycle that they find difficult, if not impossible, to get out of.
This is how they usually work: Client borrowed from a payday lender who charged her $60 for up to 15 days. Her plan was to repay the money when she received her next paycheck in two weeks. When the time came, she still didn't have enough money to pay off the amount she borrowed plus the $60 fee, so she paid an additional $60 fee and rolled her payday loan over for another two weeks. The cycle continued, and at the end of six months she had paid $720 in fees and still owed the original $200. Her chances of repaying this debt are now slim.
The interest rates on payday loans can range from 300% to over 1,000%. Even a relatively high-interest rate credit card has a much lower rate than a payday loan.
Payday lenders target:
* younger consumers with limited understanding of finances
* consumers who are deeply in debt
* consumers who are struggling to meet their day-to-day financial obligations
* those who have a history of using high-risk lenders
How Do Payday Loans Work?
Typically, you request a payday loan for a short period of time, usually one to four weeks. You show proof of employment and identification and write a postdated check for the full amount of the amount you borrowed plus the payday loan fee, which you leave with the lender. The fee may seem reasonable: $15 to borrow $100 for two weeks, for example. However, the annual interest rate on that loan is 360 percent. It may seem worth it if you're in a bind, but people often extend the loan month after month and end up paying grossly inflated annual interest rates and end up in worse shape than when they borrowed the money in the first place.
Are Their Options to Payday Loans?
The US Federal Trade Commission’s recommendation is to avoid payday lenders. They recommend these alternatives for safer and less expensive loans:
* Contact a local credit union for a small loan.
* Ask for a pay advance from your employer.
* Consider a loan from family or friends and get the terms of the loan in writing.
* Use a credit card advance.
* Request additional time to pay the bill from your creditors instead of taking a payday loan.
* Find out what your options are before you need a short-term loan.
* Look into overdraft protection on your bank account so if you don't have enough funds to cover a check you write, the bank will pay the check and you'll avoid insufficient fund fees and returned check fees.
* See credit counseling.
* Plan ahead to prevent financial emergencies.
Prevent Financial Emergencies
Take a close look at your income and expenses. Track where your money goes and find ways to save. It only takes small amounts in a number of different areas to add up to enough to build a small savings account that you can turn to in a bind instead of turning to high-rate lenders like pay day loan companies.
For additional information about Pay Day loans in Georgia please go to: http://www.georgia.gov/00/article/0,2086,5426814_39039081_39271654,00.html
Payday loans, also known as cash advance loans, check advance loans, postdated check loans, or deferred-deposit check loans, may seem like an easy solution to a temporary cash shortage, but for many people, payday loans are the beginning of a vicious cycle that they find difficult, if not impossible, to get out of.
This is how they usually work: Client borrowed from a payday lender who charged her $60 for up to 15 days. Her plan was to repay the money when she received her next paycheck in two weeks. When the time came, she still didn't have enough money to pay off the amount she borrowed plus the $60 fee, so she paid an additional $60 fee and rolled her payday loan over for another two weeks. The cycle continued, and at the end of six months she had paid $720 in fees and still owed the original $200. Her chances of repaying this debt are now slim.
The interest rates on payday loans can range from 300% to over 1,000%. Even a relatively high-interest rate credit card has a much lower rate than a payday loan.
Payday lenders target:
* younger consumers with limited understanding of finances
* consumers who are deeply in debt
* consumers who are struggling to meet their day-to-day financial obligations
* those who have a history of using high-risk lenders
How Do Payday Loans Work?
Typically, you request a payday loan for a short period of time, usually one to four weeks. You show proof of employment and identification and write a postdated check for the full amount of the amount you borrowed plus the payday loan fee, which you leave with the lender. The fee may seem reasonable: $15 to borrow $100 for two weeks, for example. However, the annual interest rate on that loan is 360 percent. It may seem worth it if you're in a bind, but people often extend the loan month after month and end up paying grossly inflated annual interest rates and end up in worse shape than when they borrowed the money in the first place.
Are Their Options to Payday Loans?
The US Federal Trade Commission’s recommendation is to avoid payday lenders. They recommend these alternatives for safer and less expensive loans:
* Contact a local credit union for a small loan.
* Ask for a pay advance from your employer.
* Consider a loan from family or friends and get the terms of the loan in writing.
* Use a credit card advance.
* Request additional time to pay the bill from your creditors instead of taking a payday loan.
* Find out what your options are before you need a short-term loan.
* Look into overdraft protection on your bank account so if you don't have enough funds to cover a check you write, the bank will pay the check and you'll avoid insufficient fund fees and returned check fees.
* See credit counseling.
* Plan ahead to prevent financial emergencies.
Prevent Financial Emergencies
Take a close look at your income and expenses. Track where your money goes and find ways to save. It only takes small amounts in a number of different areas to add up to enough to build a small savings account that you can turn to in a bind instead of turning to high-rate lenders like pay day loan companies.
For additional information about Pay Day loans in Georgia please go to: http://www.georgia.gov/00/article/0,2086,5426814_39039081_39271654,00.html
Saturday, January 2, 2010
How your dream home can quickly turn into your worst nightmare
One of the first things that I look at when meeting with a potential bankruptcy client is their real property situation. Over the years I have narrowed most clients down to three categories:
#1. Clients who have accepted that their home is pulling them into a black financial hole and want to surrender the property and start from scratch.
#2. Clients who can afford their monthly payment and associated fees and just need to reorganize due to an unforeseen job loss or illness.
#3. Clients who will never be able to afford their homes yet will fight tooth and nail to the bitter end to stay in the home as long as possible.
These days the real estate market is a sad one. Its demise has affected almost all of us one way or another. The bubble has burst and the reality is grim. The majority of clients I represent have little or no equity in their homes. For some it does make sense to retain their property and reorganize under Chapter 13 but most of the cases that I am seeing now it makes more sense to let go of the worthless property and start over.
The following are some tips for potential home buyers to keep into consideration when deciding on purchasing a home/condo:
#1. Do you really want to live in a community with a HOA (Homeowners Association) or condo fees?
After almost a decade of fighting with creditors in bankruptcy court I can honestly say that some of the nastiest creditors are the HOA's. Typically the fees owed are small as compared to other creditors but the aggressive pursuit by the HOA's in bankruptcy court never ceases to amaze me.
I usually have to call opposing counsel at least once a month on a case involving HOA fees due to the fact that the HOA does not want to reinstate services to our client once they are under bankruptcy protection. Unfortunately in my experience the head honcho for the HOAs mostly resembles a mini-Hitler (or Hitlerette) on a power trip.
In a financial bind and need to rent your house out? You may need to think again since usually you have to get permission from your association first. Last year I had a client forced into bankruptcy because she rented her house out (because she lost her job and moved in with her family) and did not get permission from her board. She was unaware of the restriction but regardless, she was fined $50.00 every day that the tenant was in the home. On top of that she had to break her lease with the tenant who in turn sued her! At the end of the day she decided to let the house go. The house went into foreclosure which in turn lowered the property values of her entire neighborhood. Not really smart on the HOA's part considering the final outcome.
My best advice for potential home buyers is to REALLY read and review your HOA/Condo covenants BEFORE you get attached to your potential new home. Many home buyers have no clue regarding the extent they are restricted until they receive a violation.
#2. Just because you are qualified for a certain amount does not mean you need to purchase a home for that amount.
Many times when reviewing a potential client's intake form I am shocked at the size and price of the home that they live in. Perhaps it was affordable on two incomes but typically when one person looses their job it spells trouble. People are struggling so hard just to make the payment on their oversized house that they are unable to take a vacation or put money away for a rainy day. In the end the house becomes a financial prison.
Even if the payment looks manageable owning a home has many hidden expenses such as maintenance for your lawn, cleaning the gutters, maintaining the heating and air system, termite control (which is a necessity especially if you live in GA), and in some cases HOA fees.
#3. Buy in a good school district.
This is important for 2 reasons. First, even if you do not have kids, when you go to sell your property this fact will help you with potential buyers who do. Second, the cost of private school can run between $800-$1200 a MONTH. Think of all the money you can save (especially if you have more than one child) if your kids can attend a good public school.
#4. Hire a home inspector.
Your lender will require a home appraisal but you should hire your own home inspector, preferably an engineer with experience in doing home surveys in the area where you are buying. Their job will be to point out potential problems that could require costly repairs down the road.
Home ownership can be a wonderful experience for many but it is not for everyone. There are many situations where buying is a bad financial decision. At least for now it appears that the days of "No Down Payment" and easy doc loans are gone. Make sure you are well informed and have considered all financial issues before deciding on a home purchase.
#1. Clients who have accepted that their home is pulling them into a black financial hole and want to surrender the property and start from scratch.
#2. Clients who can afford their monthly payment and associated fees and just need to reorganize due to an unforeseen job loss or illness.
#3. Clients who will never be able to afford their homes yet will fight tooth and nail to the bitter end to stay in the home as long as possible.
These days the real estate market is a sad one. Its demise has affected almost all of us one way or another. The bubble has burst and the reality is grim. The majority of clients I represent have little or no equity in their homes. For some it does make sense to retain their property and reorganize under Chapter 13 but most of the cases that I am seeing now it makes more sense to let go of the worthless property and start over.
The following are some tips for potential home buyers to keep into consideration when deciding on purchasing a home/condo:
#1. Do you really want to live in a community with a HOA (Homeowners Association) or condo fees?
After almost a decade of fighting with creditors in bankruptcy court I can honestly say that some of the nastiest creditors are the HOA's. Typically the fees owed are small as compared to other creditors but the aggressive pursuit by the HOA's in bankruptcy court never ceases to amaze me.
I usually have to call opposing counsel at least once a month on a case involving HOA fees due to the fact that the HOA does not want to reinstate services to our client once they are under bankruptcy protection. Unfortunately in my experience the head honcho for the HOAs mostly resembles a mini-Hitler (or Hitlerette) on a power trip.
In a financial bind and need to rent your house out? You may need to think again since usually you have to get permission from your association first. Last year I had a client forced into bankruptcy because she rented her house out (because she lost her job and moved in with her family) and did not get permission from her board. She was unaware of the restriction but regardless, she was fined $50.00 every day that the tenant was in the home. On top of that she had to break her lease with the tenant who in turn sued her! At the end of the day she decided to let the house go. The house went into foreclosure which in turn lowered the property values of her entire neighborhood. Not really smart on the HOA's part considering the final outcome.
My best advice for potential home buyers is to REALLY read and review your HOA/Condo covenants BEFORE you get attached to your potential new home. Many home buyers have no clue regarding the extent they are restricted until they receive a violation.
#2. Just because you are qualified for a certain amount does not mean you need to purchase a home for that amount.
Many times when reviewing a potential client's intake form I am shocked at the size and price of the home that they live in. Perhaps it was affordable on two incomes but typically when one person looses their job it spells trouble. People are struggling so hard just to make the payment on their oversized house that they are unable to take a vacation or put money away for a rainy day. In the end the house becomes a financial prison.
Even if the payment looks manageable owning a home has many hidden expenses such as maintenance for your lawn, cleaning the gutters, maintaining the heating and air system, termite control (which is a necessity especially if you live in GA), and in some cases HOA fees.
#3. Buy in a good school district.
This is important for 2 reasons. First, even if you do not have kids, when you go to sell your property this fact will help you with potential buyers who do. Second, the cost of private school can run between $800-$1200 a MONTH. Think of all the money you can save (especially if you have more than one child) if your kids can attend a good public school.
#4. Hire a home inspector.
Your lender will require a home appraisal but you should hire your own home inspector, preferably an engineer with experience in doing home surveys in the area where you are buying. Their job will be to point out potential problems that could require costly repairs down the road.
Home ownership can be a wonderful experience for many but it is not for everyone. There are many situations where buying is a bad financial decision. At least for now it appears that the days of "No Down Payment" and easy doc loans are gone. Make sure you are well informed and have considered all financial issues before deciding on a home purchase.
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