H E A L T H L A W Bankruptcy Part Two: Honesty is the Only Policy ■ JOHN SHUFELDT, MD, JD, MBA, FACEP I n this challenging financial market, in this space (urgent care medicine), should bankruptcy be something with which you are overly concerned? The answer is an unequivocal, “yes!” Urgent care ownership is not for the faint of heart or the short of capital. As a friend of mine said, “This business has a lot of moving parts and misfiring on any one of them can cause your business to be upside down very quickly.” I have known a number of operators who have gone “tango uniform” by simply not being diligent with health plan contracting and collections. One individual I know was upside down by $1.6 million within 18 months! Should business be this unforgiving, where a few simple mistakes can lead to financial ruin? Of course it should. After all, Darwinism exists on more levels than simply evolution. It is man’s nature to want to improve their lot in life by placing their effort and capital at risk. Adam Smith realized this back in the 18 th century: “It is not by augmenting the capital of the country, but by rendering a greater part of that capital active and productive than would otherwise be so, that the most judicious operations of bank- ing can increase the industry of the country.” When you place capital at risk, one of the potential out- comes is loss of that capital. Let’s face it, but for capitalism, bankruptcy laws would probably not exist. As Frank Borman, the ex-CEO of now defunct Eastern Airlines said, “Capitalism without bankruptcy is like Christianity without hell.” So, now that we agree that bankruptcy equals hell, let’s figure out how to get out of it with the least amount of burnt flesh! First and foremost, hire competent council. Bankruptcy John Shufeldt is the founder of the Shufeldt Law Firm, as well as the chief executive officer of NextCare, Inc., and sits on the Editorial Board of JUCM. He may be contacted at JJS@shufeldtlaw.com. 38 law is an extremely complex area of knowledge containing an intertwined body of both substantive law and procedural rules. Just as you would not want me performing brain surgery on you, the debtor does not want a “generalist” attorney rep- resenting you in a bankruptcy proceeding. Debtors should not settle for a “discount bankruptcy” attorney or the bankruptcy forms sold at the office supply store. If a debtor is contemplating bankruptcy, they cannot trans- fer assets or assume additional debt. Both of these actions can result in suit by the trustee and, more importantly, the trans- fer of additional debt being denied discharged (i.e., you are stuck with it) during the proceedings. Nor can the debtor pay off insiders (friends and family) pref- erentially. Any payments to insiders within 12 months of filing can be set aside as a preferential transfer. A “preferential transfer” (paying off friends and family first) occurs when the debtor moves funds to a creditor before filing, which results in that creditor receiving more than they would have in the liq- uidation proceeding. Once hired, competent counsel’s advice should be heeded. For example, the Bankruptcy Code allows a debtor to ex- empt from their monthly income certain expenses that are necessary and reasonable. Vacations, vacation funds, IRA payments, etc. are not considered reasonable. Although what is allowed varies from case to case, the expense, in the eyes of the court, must be reasonable and necessary. Unfortunately, the debtor can simply no longer spend money as they wish and be argu- mentative with their attorney or the court will not expedite the process. Now this will sound hard to believe, but some people actu- ally try to pay their attorney with credit cards believing that they will ultimately not have to pay this debt. But some categories of debt cannot be discharged if they are made within a certain period before declaring bankruptcy. If the debtor charges some- thing believing it will never be paid off, it is considered fraud and in some cases can lead to other, more serious charges. JUCM T h e J o u r n a l o f U r g e n t C a r e M e d i c i n e | S e p t e m b e r 2 0 0 8 w w w. j u c m . c o m