Before podcasts and social media posts became the preferred method for proclaimed experts to disseminate economic information, books were a popular way to inform others about financial strategies. One of the most popular financial books out there was Rich Dad, Poor Dad. This book came out in 1997 and was co-authored by Robert Kiyosaki and Sharon Lechter. In it, Kiyosaki described the differences in mindset between his own father, who was not well-off, and his best friend's wealthy entrepreneur father. Despite sounding like a huge diss to his dad, Rich Dad, Poor Dad has sold over 44 million copies worldwide. Some might assume such a successful author with such expertise in finance would have no debt. But Kiyosaki recently let it be known while appearing as a guest on a podcast that he has approximately $1.2 billion in debt.
Most banks will simply not lend out the money that allows a person to go more than a billion dollars into debt. But Kiyosaki's 9-figure debt isn't standard personal debt. Instead, Kiyosaki's liabilities are primarily in real estate investments: his ex-wife estimates their portfolio to contain about 1,500 units. So while Kiyosaki's debt is astronomical, it is also intentional. This is because he can borrow against his massive equity stakes as property values rise, and borrowed money is not taxed as income. He also holds his investments in separate limited liability companies to reduce risk. So while Robert Kiyosaki may technically have a large amount of debt, he is utilizing it strategically, and it is not an indicator of financial struggles. Experts speculate that he announced his debt partly for shock value, but they also warn against the dangers of carrying such a significant amount of debt in case his financial situation ever takes a turn for the worse.
If you have debt, it's probably nowhere near $1.2 billion. But it doesn't take billions of dollars in debt to produce significant financial struggles. In this economy, every last dollar counts when it comes to paying bills at the end of each month. Are you curious about how filing for bankruptcy may change your circumstances? Discuss a potential chapter 7 or chapter 13 bankruptcy filing with an Avondale Bankruptcy Lawyer today by calling 623-399-4222.
The Threshold Between Desirable and Damaging Debt
Most financial experts agree that maintaining at least some debt, and staying current on payments, is part of a healthy financial profile. It builds credit history, and when a credit line can be established with a favorable interest rate, it can actually save the borrower money over time. But executing this type of strategy requires careful planning and a steady stream of income. Interruptions in either could quickly turn healthy debt into crushing debt, which may require some form of debt relief, such as bankruptcy.
Someone may experience a life event that makes it clear that they will no longer be able to keep up with payments on their lines of credit. Job loss, divorce, a medical emergency, natural disaster, and other unexpected events can all completely upend a person's financial situation. Here, that person may need to start researching different forms of debt relief immediately. But debt can creep up on someone slowly, even if they have a decent income. It starts with one credit card that gets run up and forgotten about, or a bill that is left unpaid and begins accruing interest. That person's credit score takes a hit, and they throw away money each month on interest until they accrue another debt. The cycle continues again, but in greater force.
What are some of the telltale signs that debt has officially gotten out of control? They can be different based on a person's unique situation, although some are almost a surefire indicator of financial struggles, like:
- Receiving a summons for a lawsuit filed against you by a creditor
- Having your utilities, Wi-Fi, or cell phone shut off by a utilities provider
- Constantly dodging phone calls from creditors and refusing to answer unknown numbers
- You and your employer receiving notice that your wages are set to be garnished
- Hiding your vehicle from the repo man
- Not qualifying for loans or only receiving unfavorable interest rates due to poor credit
- Being able to live comfortably if not for excessive debt payments
Which Bankruptcy for a High Debt Balance?
Robert Kiyosaki clearly has amassed a debt balance far beyond what most financial institutions will ever offer the average person. And based on his announcement, he has no plans to file for bankruptcy any time soon. If he were to file for bankruptcy, chapter 11 bankruptcy might be appropriate. It is most associated with business bankruptcy filings but can also be used by individuals, especially when they are facing at least one costly lawsuit. Here, his top creditors would form a committee to vote on how the case is resolved, as his debt is too high to qualify for a subchapter V chapter 11 bankruptcy filing. Once an agreement is reached on a bankruptcy plan, it is approved by the court and put into action.
Chapter 7 bankruptcy is another option for someone who has a large amount of debt that is unsecured. There are some restrictions on clearing debt in chapter 7, such as luxury credit card spending shortly before filing, but otherwise no limits to how much debt it can discharge. If Robert Kiyosaki had $1.2 billion in unsecured debt and met the income qualifications for chapter 7 bankruptcy, it could theoretically clear all of that debt. But the bulk of his debt is not unsecured, and he likely would have to surrender valuable assets to proceed with a chapter 7 bankruptcy filing.
Chapter 13 bankruptcy is the second most popular form of consumer bankruptcy, but it can be difficult to file if the debtor has an astronomically high debt balance. Chapter 13 is a payment plan form of bankruptcy, with the payment plan lasting either 3 or 5 years. The debtor must be able to pay off their bankruptcy costs, secured debts, and priority debts within that time span, with unsecured debts being cleared at the end of the payment plan if all other debts have been repaid. Chapter 13 also has legal limits on how much secured and unsecured debt a filer can have, so a debt balance in the billions would rule it out entirely. Even when a high debt balance falls within those limits, the debtor would need to earn enough disposable income to pay off those debts within 3 or 5 years to qualify for chapter 13 bankruptcy. While this makes qualifying more difficult with high debt, it may be the only option to help deal with outstanding secured and priority debts.
Learn More About Filing for Bankruptcy in Avondale, Arizona With Our Firm Today
Nothing about Robert Kiyosaki's debt announcement indicates that he plans to file for bankruptcy any time soon. But if you accrue even a fraction of his debt, you might be considering chapter 7 or chapter 13 bankruptcy. If you want your bankruptcy filed correctly so your case can go as smoothly as possible, you owe it to yourself to retain a high-quality bankruptcy firm in Avondale. Our firm offers free consultations by phone and payment plan options starting as low as Zero Dollars Down. Get started today by calling 623-399-4222.