31 May Personal Bailouts – Should You Bailout A Friend or Relative?
In this era of corporate bailouts, it makes you wonder how many individual bailouts are happening, and, more importantly, is it the right thing to do? Three times in the past week, a client has called to request that we close the file because they no longer have to file for bankruptcy. While I love to hear this news, I have to stop and wonder why? When this happens, I always look back at the person’s intake to make sure we didn’t recommend a bankruptcy where a bankruptcy was not necessary. Each and every time a bankruptcy could have and should have been pursued.
Although I didn’t ask, one client told me that they were being bailed out by a relative. Pursuant to their request, I closed the file, but I wondered, was this the right thing to do? In other words, is this a good choice for the individual to be bailed out and for the person doing the bailing? Don’t get me wrong, as a bankruptcy attorney, you would think that I advocate bankruptcy at every possible minute, but that would not be true.
I only advocate bankruptcy when bankruptcy is necessary and warranted. So, after reviewing the intakes and seeing that a bankruptcy was warranted in each instance, I had to wonder why someone would bailout a relative or friend and why the other person would allow themselves to be bailed out rather than file bankruptcy. Because this is a relatively new concept, I will tell you what I was thinking about.
Let’s start with the person doing the bailout. There must be a real good reason behind the bailout. I guess you really want to help the person or the relative. But, my thoughts lead me to believe that unless you have the money just laying around and do not care about being paid back or if you ever see the money again, then it may be an ok idea to bail someone out.
First, how much will be required to bail out the person? Obviously, each person’s needs will be different. Are you being asked to just pay the debts, or are you going to be asked for enough to clear the debts and provide a little bit of a cushion? What if the person who gets bailed out, still cannot get back on their feet after the bailout, are you required to continue providing funds until that person makes it? Will the person being bailed out blame you if you cannot provide additional funds? Will there be hard feelings if the money is not paid back as promised?
Second, let’s look at the others side of the equation, the person being bailed out. While I’m sure that everyone would love to have a rich relative who could bail them out? Is that the right thing to do? I’m not one hundred percent certain that is the case. I would want answers, in writing, to some questions. What is their plan for the money? What are the terms of the loan/bailout? Is it a gift? Is it for a sum certain? Can or should the lender ask for a plan of action or to see the person’s financial documentation? How much control are you willing to give up over your financials? Do they understand that there is not an unlimited pot of gold at the end of the day. Do they understand that if they have to file bankruptcy anyway, the lender’s debt will be discharged? Will there be hard feelings if there is no additional money in the future?
These are some of the issues which will need to be decided upon prior to providing a bailout loan. Again, the only way that I can see a bailout working is if the lender is so wealthy and has this money just laying around doing nothing, and they will not miss it. I don’t see that happening in today’s economy.
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