How to go Bankrupt – Anatomy of a Local Case

A week ago, the Lebanon Daily News did an article about the bankruptcy filing of a local doctor. Some people immediately cried foul as invasive, but others quickly pointed out that Dr. Jeffrey Backenstoes and his wife obtained loans from the city for a few downtown investment properties, which not only makes it newsworthy, but also proves once again that you just can’t make it in downtown Lebanon (the guy who bought and completely refurbished the farmer’s market also went bankrupt a year or two ago, and there are a few other highly visible ventures that appear to be headed toward the same fate).

Not satisfied with just the information the paper provides, I finally got myself a PACER account to see the filings for myself to see how bad it really is, and boy was I in for a trip. I decided to make a budget for the Backenstoes. FMF’s The Wealth of Farmers also contributed inspiration for this little project, in showing that high-income doctors have a bad habit of simply blowing it on keeping up with the Joneses – or perhaps in this case, keeping up with Doctor Jones.

For the sake of making things a world easier for me, I created a YNAB file from the information in the bankruptcy filing. And then I abandoned that idea, because it wasn’t working as well as I would have liked.

The bankruptcy filing lists assets of $936,000 and liabilities of $2.28 million. I couldn’t imagine being two million dollars in debt. It is simply mind-boggling. Dr. Blackenstoes lists a monthly take home pay of $10,455 from his practice. That’s $125,000 a year. Not gross income, but take home pay. I want his job for a year! If they were somehow magically able to negotiate all of their debts to 0% interest (balance transfer, anyone?) it would still take over 18 years to pay off all their debt. I would imagine with the current interest rates (undisclosed) it would probably be two or three times that long. In other words – long after they’re retired, or even dead for that matter.

Once upon a time, the doctor and his family lived in a nice little home on Long Lane, that they sold netting under $50,000. Long Lane isn’t a bad place to live. Nice and quiet, farmland in front of you as far as the eye can see. Now, they live in a cookie-cutter development where they bought their current home for almost $700,000. Four ATVs (who the hell needs four ATVs? A farmer, maybe), a Lincoln MKS, a Jaguar, a Harley, and a mini electric car. Must have been nice.

Throw on top of that mortgages for almost a half million on an investment property downtown, and a little over a million owed to a local contractor for improvements to that property, and your trouble has already ballooned out of control. $300,000 mortgage on the doctor’s office. $140,000 in federal student loans. Wait, WHAT!? Before you dug this gigantic hole you couldn’t be bothered to pay off your student loans first? Focusing on that first before the new house, investments, improvements and whatnot, this could have been paid off in two or three years with a super debt snowball of doom.

But that’s not all. The guy brings home $10,000 a MONTH from his practice, and they want to pay only $584/mo on all these debts for 60 months. It’s one thing to say “wow, this guy’s made some pretty big mistakes in his financial life, he may even be a complete dipshit, but hey, everyone deserves a second chance, right?” But when you compare those numbers, you can’t help to think he’s trying to game the system. Even when you take living expenses in to account to pay for utilities and whatnot in Backenstoes Manor, if they’d start living the frugal life and actually try to turn things around, stop living the rich life (when they clearly aren’t quite), and take a little responsibility, I’d say $7,000/mo sounds about right. That works out to paying creditors 18% of what they’re owed (assuming they’re all unsecured debts, which they aren’t, and there’s a lot of overlap – for example, the $1 million plus debt to the contractor is secured by the home, as well as the mortgages on it), rather than 1.5%.

What started as a matter of curiosity has now pissed me off… I and many other personal finance bloggers (and millions more who aren’t bloggers) are fighting tooth and nail to get out of debt by taking responsibility, living frugally, and doing what needs to be done, while this jackass is living the high life, making tons of money, and he only wants to pay HALF of what I pay every month, while earning 10 times more?

For the uber curious, I’ve uploaded the filings here.

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