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Open a business loan then file for bankruptcy?

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   posted: May. 1, 2008 @ 9:16a
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I know I will get a lot of red for this. I also tried to search specifically for this but was unable to find it in this forum. I do remember someone talking about this though but vaguely remember. Perhaps someone can lead me in the right direction?

Scenario 1:
Suppose someone attempts to open a business so that he/she is able to take out a huge business loan from a bank. Now a few years later (2-3 years), the business has gone down the drain and that person has no intention of keeping it and files for bankruptcy. What can happen besides the credit report showing this and perhaps the possibility of being denied any loans in the future?

Scenario 2:
The person opens a business to take out the loan knowing he will not pay it back and files for bankruptcy for his business 2 years later. What can happen? Jail?

 

I myself am financially responsible and will not be doing this. I would just like to know the pros/cons for this type of thing since this thing interested me. Morally, I know that this is illegal but like further clarifications. Gosh, I feel like kevinkevinkevin, brianbrianbrian, and simplemoney but if someone can lead me in the right direction that would be much appreciated. Also post information if have them available. Flame away.

   posted: May. 1, 2008 @ 9:16a

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   posted: May. 1, 2008 @ 9:19a
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As a newly opened business, you will be unable to get a business loan without providing a personal guarantee. So, the consequence of the business defaulting on its loan obligations personally guaranteed by the owner(s) would be exactly the same as with the owners obtaining a loan in their own names and then defaulting on it.

   posted: May. 1, 2008 @ 9:21a
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What would be the consequences for defaulting either intentionally or unintentionally?

   posted: May. 1, 2008 @ 9:22a
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reminice said:Scenario 2:
The person opens a business to take out the loan knowing he will not pay it back and files for bankruptcy for his business 2 years later. What can happen? Jail?

Preserved. And say hi to Bubba, your new cellmate.

   posted: May. 1, 2008 @ 9:24a
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chadadi said:reminice said:Scenario 2:
The person opens a business to take out the loan knowing he will not pay it back and files for bankruptcy for his business 2 years later. What can happen? Jail?

Preserved. And say hi to Bubba, your new cellmate.

Thanks for your contribution to this thread. This post is to educate myself since I find it interesting.

   posted: May. 1, 2008 @ 9:27a
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IANAL and I don't know the ins and outs of BK proceedings, but I'm guessing that there's a chance they could assign a forensic accountant to your case to examine the assets of the business. If they find that money that you borrowed in some account in the Caymen Islands, then your ass is probably cooked.

Like I said, I don't know for sure, but is it worth the risk?

   posted: May. 1, 2008 @ 9:28a
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reminice said:What would be the consequences for defaulting either intentionally or unintentionally?If you obtained the loan with fraudulent documents, you could very well face criminal prosecution regardless of whether the default was "intentional" or "unintentional." If the documents were accurate and you are just a horrible businessman, then you will lose everything that you own, your credit will be ruined and, depending on the circumstances, you may not be allowed to discharge the entire indebtedness and will instead be required to pay it off over the course of several years.

What exactly are you curious about?

   posted: May. 1, 2008 @ 9:29a
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chadadi said:reminice said:Scenario 2:
The person opens a business to take out the loan knowing he will not pay it back and files for bankruptcy for his business 2 years later. What can happen? Jail?

Preserved. And say hi to Bubba, your new cellmate.

we dont have debtors prisons moron!? your several hundred years in the past my mis-informed friend. unless you lied on the application, but im still unsure if that is a crimial matter. it really depends on if its a secured loan or not. yeah it will destroy your credit so its going to be a one shot thing.

   posted: May. 1, 2008 @ 9:32a
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geo123 said:If you obtained the loan with fraudulent documents, you could very well face criminal prosecution regardless of whether the default was "intentional" or "unintentional." If the documents were accurate and you are just a horrible businessman, then you will lose everything that you own, your credit will be ruined and, depending on the circumstances, you may not be allowed to discharge the entire indebtedness and will instead be required to pay it off over the course of several years.

What exactly are you curious about?
I was inquiring about the actions that the banks can take as well as what this business owner can do to protect himself. Knowing that there is no way to "stash" that loan money, it seemed like you answered my question. Are there any websites that provide further clarifications?

   posted: May. 1, 2008 @ 9:33a
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ceobeaver said:IANAL and I don't know the ins and outs of BK proceedings, but I'm guessing that there's a chance they could assign a forensic accountant to your case to examine the assets of the business. If they find that money that you borrowed in some account in the Caymen Islands, then your ass is probably cooked.

Like I said, I don't know for sure, but is it worth the risk?
Thanks for your input CEO, I would agree with your post.

   posted: May. 1, 2008 @ 9:35a
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dodgeman007 said:it really depends on if its a secured loan or not. yeah it will destroy your credit so its going to be a one shot thing.
If this is the case where only your credit is destroyed, why don't we see more of this type of "scam" from people who just don't care about their credit or from people who are old and will be retiring either way? Btw, what can you do with the money so that there won't be any left for the bank to take back?

   posted: May. 1, 2008 @ 9:43a
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reminice said:I was inquiring about the actions that the banks can take as well as what this business owner can do to protect himself. Knowing that there is no way to "stash" that loan money, it seemed like you answered my question. Are there any websites that provide further clarifications?If you personally guarantee a loan, the banks can take the exact same actions against the guarantor as they would against the borrower. As for the websites, what are you seeking to clarify? This isn't brain surgery.

   posted: May. 1, 2008 @ 9:47a
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reminice said:dodgeman007 said:it really depends on if its a secured loan or not. yeah it will destroy your credit so its going to be a one shot thing.
If this is the case where only your credit is destroyed, why don't we see more of this type of "scam" from people who just don't care about their credit or from people who are old and will be retiring either way? Btw, what can you do with the money so that there won't be any left for the bank to take back?What do you mean "only your credit is destroyed"? If you own any assets, the lender will go after all of them. Further, if you do not qualify for an outright discharge of indebtedness in a bankruptcy (the bankruptcy reform has made it significantly more difficult to do so), you will be required to pay it back over several years. You really have to be an idiot to intentionally subject yourself to something like that.

   posted: May. 1, 2008 @ 9:53a
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Ah, I got the sense of it now. I already know that it is not a good idea and just needed some reasoning behind it. Thanks geo123 for your help. Much appreciated.

   posted: May. 1, 2008 @ 9:55a
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reminice said:Gosh, I feel like kevinkevinkevin, brianbrianbrian, and simplemoney...

This should have been your first clue.

   posted: May. 1, 2008 @ 10:18a
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dodgeman007 said:we dont have debtors prisons moron!? your several hundred years in the past my mis-informed friend. unless you lied on the application, but im still unsure if that is a crimial matter. it really depends on if its a secured loan or not. yeah it will destroy your credit so its going to be a one shot thing.There is only one correct statement above, and that is about the destroyed credit.

Don't have debtor's prisons? Try not paying your child support obligations. What color handcuffs do you like best?

Lying on an application not a criminal matter? Ever hear of fraud? What color handcuffs, again?

Matter if it's a secured loan or not? Not really. Fraud is fraud. I suppose OP would lose whatever asset he pledged as collateral.

   posted: May. 1, 2008 @ 11:14a
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reminice said:
Scenario 2:
The person opens a business to take out the loan knowing he will not pay it back and files for bankruptcy for his business 2 years later. What can happen? Jail?

I really hope you're asking so you can convince someone else NOT to do it... it's called FRAUD. Here's a link: http://en.wikipedia.org/wiki/Fraud Do a find-in-page for bankruptcy over there. When you take out the loan, you agree to pay it back. If they can prove you never intended to pay it back to begin with, you go to jail. Don't do it.

   posted: May. 1, 2008 @ 11:27a
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SomeOtherChick said:reminice said:
Scenario 2:
The person opens a business to take out the loan knowing he will not pay it back and files for bankruptcy for his business 2 years later. What can happen? Jail?


I really hope you're asking so you can convince someone else NOT to do it... it's called FRAUD. Here's a link: http://en.wikipedia.org/wiki/Fraud Do a find-in-page for bankruptcy over there. When you take out the loan, you agree to pay it back. If they can prove you never intended to pay it back to begin with, you go to jail. Don't do it.
Trust me, I will not be attempting this.

   posted: May. 1, 2008 @ 11:40a
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SomeOtherChick said:reminice said:
Scenario 2:
The person opens a business to take out the loan knowing he will not pay it back and files for bankruptcy for his business 2 years later. What can happen? Jail?


I really hope you're asking so you can convince someone else NOT to do it... it's called FRAUD. Here's a link: http://en.wikipedia.org/wiki/Fraud Do a find-in-page for bankruptcy over there. When you take out the loan, you agree to pay it back. If they can prove you never intended to pay it back to begin with, you go to jail. Don't do it.Prison for loan fraud?

That's funny.

What's that kid's name...Casey Serin?

He bragged about loan fraud on his blog for over a year. His fraud resulting in banks losing hundreds of thousands of dollars. The FBI knew about it. Blog readers called the FBI and begged them to look into the matter. The kid was on Dr. Phil, discussing his fraud. The FBI didn't do anything to him.

Why? Because loan fraud is as common as cheating on taxes. Every now and then, the law makes an example of someone (Wesley Snipes). That's usually enough to scare people like you into thinking that everyone who commits loan fraud or tax fraud will go to prison for 20 years.

In reality, almost no one goes to prison for loan fraud. Especially not the small-time kind of fraud the OP is discussing.

To the OP: Don't do it. There's just too darned many ways to legitimately make a lot of money in this country, without having the guilt of theft hanging over your head. Start a green energy hedge fund, and pay yourself a big salary...

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