BANKRUPTCY!  If you’ve done it, you don’t like to talk about it.  If you’ve never done it, you might with contempt on those who have.  But I’m about to tell you why BANKRUPTCY is more important to those of you who are financially strong than for anyone else… and for a reason you’d never, ever guess.  Get ready for a perspective on Bankruptcy you’ve never heard before.  I’m Bryan Ellis.  This is Episode 129.

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Hello, SDI Nation!  Welcome to the podcast of record for brilliant, discerning self-directed investors like you!

Apologies once again for the raspy voice.  This respiratory challenge is really taking it out of me, folks, but I find it impossible to resist the urge to spend this time with you each day, and am so grateful for your time and attention, so let’s get started.

I’d like to begin with an interesting formal announcement from the IRS.  Apparently, they will no longer accept checks for tax payments in excess of $99,999,999.00.  That’s right.  So for those of you who might have to write a check for your tax liability of $100,000,000 or more, you’ll need to submit multiple checks.

Hehehehehe.  I’m not kidding.  Gee whiz.

So… Today we talk about bankruptcy.  You may think this is wholly unrelated to being a self-directed investor, but nothing could be further from the truth.  As you’re about to see, the rules surrounding bankruptcy line up perfectly with Core Value #1 of Self Directed Investors:  That You Must RESPECT YOUR OWN CAPITAL.  Here’s how:

Bankruptcy is kind of a dirty word to many, and viewed as something to be avoided at virtually any cost.  And you know what?  I basically agree with that.  I’ve never declared bankruptcy, and never expect to do so.  You probably won’t ever do so, either.

But I want you to understand why bankruptcy is a GOLD STANDARD of preparation, where the safety of your assets are concerned, even though you, God willing, will never have to go bankrupt. 

So here’s how bankruptcy works:  A person – let’s call him Joe – experiences financial trouble.  Let’s just imagine that Joe is NOT a financial deadbeat whatsoever… he’s a reliable guy entirely.  But he was in a car accident and was sued for a huge amount of money, and he lost.  So Joe now has a problem – he has creditors, and those creditors want to take Joe’s stuff, because he owes them money in the form of this judgment.

Joe can no longer stand the hounding he’s receiving, and he hires a lawyer to declare bankruptcy on his behalf.  The process works roughly like this:  Joe declares his assets and his liabilities for all the world to see.  Joe’s creditors make their claims about how much of Joe’s assets belong to them.  And here’s the thing:  Joe doesn’t have the right to refuse to cooperate.  In fact, the entire authority of the federal government comes to bear against Joe.  He has to disclose EVERYTHING.  Failure to do so means Joe has broken the law, and in that case, the issue isn’t just debt, its jail time.  So basically, every bit of financial information about Joe is rather easily available to the creditors, and to the court.  Everything is in the open.

So Joe’s creditors dig in, ask every question they can, and at some point the judge determine which creditors get which assets, and Joe is basically left without any financial assets at the end.  He might get to keep his home, or maybe he won’t (depending on the state).  But basically all of Joe’s assets MUST be liquidated in order for Joe to gain the one huge BENEFIT available through bankruptcy… and that benefit is massive:  Once the process is complete, Joe no longer has any liability to any creditors.  They’re all gone.  They can no longer hound Joe.  He’s out from under their weight.  No more bills, no more phone calls, no more lawsuits.  The financial nightmare for Joe is over.  Joe is now penniless, but Joe is free.  Joe can start over.

But here’s a crazy question:

What if it was possible for Joe to structure his assets in such a way that, even though he declared bankruptcy, that he never lost a single asset?  Before his BK, Joe lived in a great house.  After the BK, Joe lives in the same house.  Before his BK, Joe had 2 or 3 great cars, some large bank accounts – including a sizable retirement account – and other valuable “toys” like boats and a vacation home.  And after the BK, Joe still has all of that stuff… and can use it all as much as he likes?!

How could it happen, you ask?  Because Joe was forced, under the force of law, to disclose every single asset he owned, and to liquidate all of those things in order to be protected from his creditors through bankruptcy.  So why did Joe seem not to lose ANYTHING?

It’s because Joe didn’t actually own any of that stuff.  Joe was smart ahead of time.  More specifically, Joe’s attorney was smart.  His attorney designed a plan, in advance, such that in the event that Joe ever had to face an intense financial inquisition – like bankruptcy, which along with tax audit is probably the most invasive financial inquisition imaginable – Joe could honestly and legally disclose his ownership of assets as being NOTHING.  Zero.  Zilch.  Nada.  Even though he clearly has a wonderful lifestyle, both before and after the BK proceeding.

And if Joe owns nothing, nothing can be taken from him.

How did Joe accomplish that feat of financial and legal brilliance?  There are a number of different ways it could happen, but one of the most common and legally proven approaches is the use of a well-structured trust of some sort, which holds those assets for the benefit of Joe and his family.

I’m not going to go into the legal minutia of trusts, because I’m not a lawyer and that is a PROFOUNDLY complicated area of law.  If you’re looking for a referral to a lawyer who is EXTRAORDINARY at this stuff, and in whom I have profound confidence, feel free to email me at [email protected] and I’ll happily make an introduction for you.  But I’m not going to get deep into those weeds right now.

The point I do want to make – and which is OVERWHELMINGLY relevant for you – is that you, as an affluent individual, are a financial target.  Think of it like this:  if a beer-swilling, hourly laborer whose entire portfolio consists of the $258 in his checking account… if that guy is in a car wreck, he’s not going to face a lot of legal ramifications.  Why?  There’s no value in it.  Even if he’s sued, there’s nothing for anybody to win from him.

But YOU… you’re different.  You probably don’t see yourself as wealthy… and maybe you’re not absolutely rolling in excess cash.  But the truth is that the average listener to this show is certainly affluent, with well above-average financial assets.  And even though you may not feel wealthy, you do have assets… assets that are at risk unless you protect them.

And again, I submit to you that the gold standard of protection of your assets is this:  If you could go through Bankruptcy, and come out on the other side without having lost access to any of the assets you’ve accumulated, then in THAT CASE, you’re well protected, and you’re truly showing respect for the assets with which you’ve been blessed.

A great approach for being prepared for anything is to work backwards.  So get with your attorney, and ask them to tell you exactly what would happen to your assets in the event that you were faced with the need to declare bankruptcy, or if you faced a surprising and substantial tax audit.  If the answer is that all of your assets are at risk, you should write to me at [email protected] and I’ll tell you who you need to speak to in order to rectify that situation.

Remember, my friends:  Rule #1 for wise self-directed investors is to Always respect your own capital.  Most of the time, we talk about that in the context of choosing investments that are wise and low-risk.  But today’s perspective – that of showing respect for your capital by structuring it in ways to protect it from financial predators – that perspective is just as relevant, just as valuable, and more important now than it’s ever been.

My friends, invest wisely today… and live well forever!

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