Published by Mark

Builders Going Bankrupt

February 23, 2009 at 9:29 am

Back last summer, my banker friend in Portland, Oregon had told me about a young entrepreneur custom home builder. This gentleman, who’d been recognized in the press as owning one of the Top Ten Fastest Growing Companies in his area, ended up needing to turn to the bankruptcy court for help. I commented (see “West Coast Story About Blockbuster Builder Gone Bankrupt”) that as an attorney who deals in business as well as personal bankruptcy, I’d seen many different versions of this same story played out with clients in our own state of Indiana. I added that having business owners like this one willing to take risks is a large part of what keeps our capitalistic system going ’round. The bankruptcy safety net system keeps business owners willing to keep trying.

One question that my bankruptcy blog readers posed to me, and one that has come up in my bankruptcy law practice is this: What happens to lots, or to houses, for that matter, that have not been sold when a builder goes bankrupt? The answer is that the property, as an asset of the debtor, is usually sold to pay creditors. This can take a considerable amount of time. A related issue is money that buyers paid in deposits. If the builder used deposit money to fund construction, it may be difficult for the would-be homeowners to recover their cash, according to NuWire Investor.

The same Oregon banker had a more recent, even sadder tale to share, and I want to share it with you to illustrate an important point. Another local builder, this one middle-aged, was known as a community leader and a man of the highest integrity. After so many decades of business success, he decided to build his own dream home on a hand-picked lot. Once the new home was in the final stages of completion, he sold the home in which he’d been living, preparing to move into the new one. Because of the severe market downturn, though, the dream was not to be. Instead, the builder was forced to sell his brand new home and move into an apartment. He liquidated his retirement nest egg and sold most of his assets.

This community leader equated bankruptcy with admission of failure, and so he struggled at any cost to fight through the adverse market conditions and avoid turning to the courts for help. My banker friend says “I believe this builder will soon have no other choice. I think he might have had an easier time had he accepted the fate that was in front of him all along”.

A very sad story, indeed, but the saddest part is that my banker friend is right. The earlier I can help clients explore different options and negotiate with creditors, the more options will be open. This builder kept waiting and hoping things would turn around, and valuable time was lost. As I explained in “Business Bankruptcy – It Is What It Is”, as a bankruptcy attorney I do a lot of work around business “crash sites”. I help people walk away alive, so they can survive financially even if their business, due to forces beyond their control, can’t.

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