Rich Dad, Poor Dad, Bankrupt Dad

A few days ago it was reported that Rich Global, a company founded by Robert Kiyosaki, the author of numerous best sellers on personal finance, filed for Chapter 7 Bankruptcy.   According to reports, the filing occurred after the company was ordered to pay $23,687,957.21 to the Learning Annex in a dispute over profits and fees.  While the immediate instinct is to shrug your shoulders and say “See, another one of these guru’s filed for Bankruptcy”, what Kiyosaki did was use a corporate Chapter 7 Bankruptcy to his advantage.  A way in which almost no one else is able to.

Most people believe that so long as they “incorporate”, they are completely protected in their personal capacity.  It’s simply not the case.  There are innumerable instances where a person has been found to be responsible for the acts of his/her company by Courts.  Not carrying enough insurance, mixing your money with the company’s money, fraudulent actions; all of these are instances where someone can “pierce the corporate veil” and come after an individual instead of, or in addition to, the company.  When people start businesses and things don’t work out, they immediately begin to ponder filing a Chapter 7 Bankruptcy in the belief that they will personally be off the hook.  Almost never works.  The difference between Kiyosaki and the rest of us, is that in all likelihood (and, I can almost guarantee this), Kiyosaki did not personal guarantee any of the Corporate debts of Rich Global.  In other words, he didn’t personally guarantee the commercial lease, if there was one.  He likely wasn’t required to, and didn’t guarantee any of the credit card accounts for Rich Global.  So when Global filed for Chapter 7 Bankruptcy, Kiyosaki simply went on his merry way and used his other companies to conduct business.  That’s the right way to do it. But it’s not available to most people.

The vast majority of small business owners have to guarantee their leases or equipment loans personally, and/or personally guarantee their “corporate” credit cards.  They have no real collateral, so any bank worth their weight will require that the business owner sign on the dotted line in a personal capacity.  That means if the business owner sees that the restaurant he started isn’t taking off, and needs to file Bankruptcy, he’s likely going to need to file a personal instead of (or, in addition to) a corporate Bankruptcy.  The owner’s assets are now on the line.  Everything he/she owns.  You can debate whether or not any of this is fair, but, in a situation like Kiyosaki’s, it was set up perfectly.  None of his assets (other than the assets of the Company filing) are touched, and he simply continues to operate as usual.  Granted, he lost a few million dollars when he filed, but for someone who is worth $80,000,000, that’s a hit he can afford to take.

A Chapter 7 Bankruptcy for a corporation is a highly complex filing.  Never try to do it on your own.  Always speak with a lawyer before taking that next step.