Bankruptcy: 4 tales from the trenches

By Sally Herigstad

Bankruptcy can happen fast -- when a person is successfully sued or when unexpected medical expenses run up. Or it can happen in slow motion, when a business fails or long-term unemployment makes it impossible to keep up with bills. No matter how a person gets to the point of considering bankruptcy, the worst thing about it is the unknown.

What really happens to you when you file for bankruptcy? What do you have to do? How do you survive afterward?

Four real people, Michael, Robert, Robin and Andrew, shared their experiences going through bankruptcy. (Only Robert allowed us to use his real name.)

• Robert Nickell, a pharmacist and chairman of the Nickell Group, filed for bankruptcy in 1999, when he was 39. He lost his business, a pharmacy in Manhattan Beach, Calif., after accumulating more than $600,000 in debt then going through a protracted divorce.

• Robin, 31, thought she was covered by health insurance when she spent a week in the hospital after a car accident. She was mistaken. She was already in debt from starting a freelance copy-editing business; with the hospital bill, her debts topped $65,000. Then she lost her job. That was the last straw.

• Michael practiced medicine in Oregon for 45 years. He filed for bankruptcy at age 72, when he could no longer work and had no savings to fall back on. He was going through a divorce at the time as well. He owed about $50,000 in back taxes, medical bills and business debts.

• Andrew, 36, and his wife, Ashley, 35, owned a retail company in Colorado that sold wireless products, telephones and satellites. They had a great run with it, but between a merger and employee theft, they ran up about $300,000 in debt. They filed for joint bankruptcy two years ago.

Some aspects of bankruptcy weren't as bad as they thought they would be. Other aspects were worse. Here's how it went:

The buildup: How did I get here?

Robert, Robin, Michael and Andrew all found themselves sliding into the circumstances that led them to choose bankruptcy.

Michael had barely broken even in his medical practice for years. He had planned to work until he died, but health problems forced him to retire. His phone rang constantly as creditors sought him out. Eventually, he quit answering it. Bills were stacked all over the office; he stopped opening them. He had given up long before he actually filed for bankruptcy.

Robin had been earning $50,000 a year at a dot-com company. One day, she came to work and was handed a box and a paycheck and told, "This is your last day." Robin moved back to her hometown and quickly found a job. She thought she was getting back on top of things, chipping away at her debt.

Then she was hospitalized, which ended her new job. She could put only a little toward the hospital bills. Living on $1,000 per month in unemployment "gave me a whole new way to look at possessions," Robin says. But cutting back wasn't enough to cut it. Within a few months, her debt was turned over to collection agencies.

Robin hated the phone calls the most. Her father advised her to not answer the phone, but even checking messages stressed her out. Most callers were friendly, but a few were ugly. "One in particular really berated me and said, 'Did you think you could spend this money and not pay it off?' It really upset me because I already did feel guilty."

Robert says, "Pre-bankruptcy is one of these very scary things where you can't believe that you got into this mess.

"I would be in my apartment, and somebody would knock on my door, and I'd want to climb out the window because I was avoiding the process servers," Robert recalls. He likened it to the stages of grief. "You're in denial -- you can't believe this is happening to you. Then there's acceptance. Serve me papers, bring it on; I'll put it in the pile with all the rest of them."

Andrew and Ashley, who worked at their company while raising three small children, fought for more than a year to overcome their debt load. They put a lot of money into the business, which eventually failed. "We used every resource to keep it rolling," Andrew says. Meanwhile, an employee helped himself to between $10,000 and $15,000 from the till.

Andrew spoke with a couple of attorneys to see if he could renegotiate with creditors or get extensions. But the creditors weren't interested: "Creditors in general will not work with you if you have been making payments on time. They'll say, 'No, call us when you're delinquent.'

"The ball got bigger and was rolling down the hill," Andrew says. "There was lots of fear of the unknown, which I think is a big part of the bad piece. You don't know how it's going to end up, if you're going to keep your cars or your house, or how drastically your lifestyle is going to change."

Filing for bankruptcy

Michael first went to a lawyer to talk about filing for bankruptcy. The lawyer determined that although Michael had very little cash, he had assets he could sell. The lawyer advised Michael to sell enough assets to pay off his debts or at least keep up the payments.

That's not what Michael wanted to hear. By then, he wanted all his debt to be gone -- quickly. He was angry at the lawyer for refusing to help him file for bankruptcy. So Michael found a paralegal through a newspaper ad. The paralegal told Michael to stop making all payments and agreed to start bankruptcy proceedings.

Robin tried a couple of credit counseling agencies, but when they heard her numbers, they told her there was nothing they could do. Finally she went to a local bankruptcy attorney who charged a flat rate. She brought as much information as she could pull together and told the lawyer her story. The lawyer advised Robin to cash her next paycheck (by then Robin had a new job) and spend it -- restock the refrigerator, fill the car with gas, pay the rent -- because any cash assets on the filing date are considered available to pay creditors.

"The lawyer and her staff were so, so kind," Robin says. "They made the process as easy as they could." Best of all, the collection calls stopped. "As soon as you contact a lawyer, the lawyer takes over and (debt collectors) can't call you anymore. I remember that being the biggest sense of relief."

Continued: When bankruptcy is unavoidable

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