Question

James Smith is the owner of a once profitable used car business. However, there was a downturn in the economy and Mr. Smith is in a position where he can hardly pay his debts. He was recently divorced from his wife and in compliance with court order; he is paying her child support for his 2 children. He has numerous creditors seeking payment for services and supplies requested by his company. The total amount owed to his is $200,000. He has a life insurance, which he has had for 35 years. It is a whole life insurance. He also owns an antique 1965 Ford Mustang and a 1964 F 150. He owns a Rolex watch, which is valued at $170,000 because it was made in 1933. Mr. Smith does not want to be declared bankrupt, but he may have no other choice. Advise Mr. Smith as to what he can do not to be declared bankrupt and explain the process if one or more of his creditors approach the court.

Answer 1

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AS FOR GIVEN DATA...

James Smith can save himself from bankruptcy in the following ways –

1. Seek permission from the court to avoid paying for child support by proving that he is barely able to provide for his own means. This will save him some cash than can be used to pay of his creditors and revive his situation
2. Sell of his assets like the Rolex watch and the antique cars to pay off his creditors
3. He has a whole life policy and hence it will have a surrender value. He can pay his debts using money from the surrender value
4. Work out a deal with his creditors. He can request the creditors to pay off the money in instalments which can help him to have some release in pressure and he can plan his payments better. He can also achieve this through consumer credit counselling which is professional help that can besought in such circumstances.

All the above measures can help him to avoid bankruptcy.

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