They Insisted That We Must Have Been Doing Something Wrong

Sharon McCann

They Insisted That We Must Have Been Doing Something Wrong

There are many articles about the bankruptcy crisis facing many families today. Many people are discussing the problems with the new bankruptcy laws that allow for credit card companies and others to pursue their debts more firmly and with greater latitude. I have yet to hear any one talk about the other side of bankruptcy. What about those of us who lose money when a business goes bankrupt?

Under the incorporation laws the assets of the individual are protected from seizure when the business fails. Other businesses which are not paid when a business fails have no recourse. The combination of incorporation protection and bankruptcy laws makes a mockery of contract law. Of what good is a contract. when a business can close up shop, refuse to honor its contracts, refuse to pay its debt, and walk away?

When it happened to us we were faced with a two fold dilemma: first we were facing a loss of staggering proportions, over $100,000.00. Secondly, we faced a complete lack of legal recourse. Every lawyer we talked to told us the same story – walk away, get counseling, there is nothing you can do to recover from this. We fell close to bankruptcy ourselves. We discovered a hard fact about life in our caveat emptor society. When we would tell people what had happened, they almost universally insisted that there was something else we could do that we were missing. They insisted that we must have been doing something wrong. No one could believe that we had made no mistakes, that we had done everything right in choosing the builder, that this had happened anyway.

When we had decided to build our own house, we owned land given to my husband by his father. We knew that if we built this house it would not be an investment property; it was to be our forever house. We planned for ten years. We lived simply and saved and saved. We investigated the builder in every way we could. We checked his credit and looked for any previous suits against him. Of course we checked with the Better Business Bureau. I even checked with the Attorney General’s office to see if anyone had filed any civil suits against him or his company. I found nothing. I got a recommendation from his bank that said that he and his company were solvent. We visited three construction sites and spoke to five satisfied customers. We spoke to our insurer and an attorney. There was one thing neither of them mentioned: surety bonds. Not once during all of this did anyone mention to us that we should insist that the builder carry a surety bond on our project. Surety bonds are common in public construction, but not in residential construction. Many states demand that builders post surety bonds before allowing development projects. Pennsylvania, where we live, does not.

There was almost a year between signing the contract and when the builder went under. When he went under we were obligated to utilize the arbitration system as demanded in the contract. We had no idea that this would only tie us up while the builder disposed of what assets he had so that there was nothing left by the time we got our judgment. We did not know that a contract was meaningless in the face of incorporation laws. We did not know the builder would have no obligation to help us finish the project at all.

When this builder went under he left three families facing homelessness, he drove another small business into bankruptcy. People do not want to believe that you can make all of the right decisions financially and have some one who makes bad decisions take your life savings with impunity. The business filing for bankruptcy is entitled to fail due to bad business practices and remains entitled to a fresh start. Those of us who made no such mistakes are entitled to spend the next 20 years paying off a debt for money we do not have and did not spend. Where in this system is the protection for the consumer? Where in this system is the protection for the family? The number of people that this has happened to is staggering. I personally have come to believe that the reason no one knows this is our insistence as a culture that if truly bad things are done to you, you must have made some mistake in order to have allowed yourself to be victimized. It is a cultural failing that allows us to be victimized again and again. Business bankruptcy needs to be overhauled. Contract law needs to be upheld.

Posted at 9:33 AM, Jan 09, 2007 in Permalink | Comments (5) | TrackBack (0)

Comments

In other words, you hired an attorney to represent you in making a $100,000 investment, and your attorney failed to point out an elementary legal remedy to protect yourself in the event of your contract partner's bankruptcy--and this is the fault of the bankruptcy system, rather than your attorney's poor advice. The contract wasn't meaningless, it did precisely what you agreed would happen: you didn't "make all the right decisions financially." Hasn't anyone suggested a malpractice suit against the attorney who failed to protect you?

I must admit that I don't begin to understand the point of this post. I mean, I understand that Ms. McCann is upset and wants everyone to hear her complaint... but what's the underlying point?

She lost money because someone she was doing business with went bankrupt? Yes, that happens, and it's terrible when it does. What's her point? That's the nature of bankruptcy: someone doesn't have enough money to pay back his creditors, so those creditors lose money. What's the alternative, for the company to counterfeit its own bills to pay them?

She's apparently arguing that bankruptcy ought to be abolished. (Which is odd, because I thought the principals of this site were generally of the ideological belief that bankruptcy laws should be loosened, not made stricter.)

Moreover, what does it have to do with the subject of this blog, which I thought was ostensibly about (opposition to) tort reform? Is going bankrupt a tort now?

Excellent article which describes how corporations escape responsibilities through the use of bankruptcy. When bankruptcy laws were tightened in 2005 it really only affected consumers, NOT companies! We're seeing more than usual numbers of builders going bankrupt lately, too. Kara Homes in NJ, Betty's Homes in AR, and many more, quite a few in FL, and at least one in CO, one in NE, & Turner-Dunn in AZ. This often leaves home buyers with a devastating financial loss because they are unsecured creditors who usually get nothing. The surety bond idea is a great one to share with other consumers. I don't know if you'll find many homebuilders willing to go to the lengths consumers should be demanding, but then there are always existing homes for sale, and many are better built.

Sharon: Some questions.

1) How did a whiny, careless, crybaby get to be a guest blogger? Hadn't you heard from neighbors and friends, from innumerable TV home repair shows, contractors are unreliable? If you can guest blog, I feel I can too. You have given hope to those of us with nothing to say.

2) Why did your contractor go bankrupt? Was it because so many lawyers filed meritless claims against him? If that is the case, find a lawyer to sue them. You may be a foreseeable third party beneficiary of contractor solvency, injured by the carelessness of lawyers.

3) Please do not give money to a contractor, except for building materials, until after each phase of the work is done, and then at the end of the work day. At least, you would still have building materials now.

This illustrates the utter, total failure of legal contracts. If this contractor were to do that in an alternative system, such as that of EBay, his business would be shut out of a $10 bil market, a type of death penalty for the business. The law of contracts is in utter failure. No promise is enforced. No recourse is possible. Its sole success is in generating big lawyer fees from the angry rich. Contracts as run by the lawyer are rip off garbage. See Ebay for the system that maintains an over 95% success rate of promise keeping.

Did you know that the consideration required for the formation of a contract was a great technical advance in Medieval times? It replaced relatives-hostages, that no one wanted back. The lawyer method of contracts is medieval and in utter failure.

Your article is very informative and helped me further.

Thanks, David