Rich Dad, Poor Dad Author Files For Bankruptcy Protection -- For His Corporation

Rich Dad, Poor Dad Author Files For Bankruptcy Protection -- For His Corporation

Posted By Sulaiman Law Group, Ltd. || 12-Oct-2012

It's obvious that I don't pay enough attention to "wealth building" schemes. Prior to reading this article about Robert Kiyosaki, I had no idea that the Rich Dad, Poor Dad books existed. It turns out that he was pretty popular -- he was on Oprah, after all. 

It also turns out that his books gave advice that was marginally useful. In some cases, he gave advice that was illegal. Based on what I've read, the only person who got rich from the Rich Dad franchise was Kiyosaki. From a consumer defense perspective, this is a guy from whom consumers should be defended. Apparently Kiyosaki has filed for bankruptcy protection -- for one of his companies. His vast personal wealth will remain untouched. This post is not about judging his actions. 

His life is providing one lesson that I think is valuable for everyone: a strategically-timed bankrupcty can help much more than a reactionary bankruptcy. Kiyosaki filed this strategic bankruptcy because he wanted to protect his company from a judgment entered against it. He could have paid this judgment with his vast personal wealth. However, he chose to file strategically.  

A reactionary bankruptcy is when someone files bankruptcy in response to a major life event. These bankruptcies are generally filed in response to death, divorce, job loss, or serious medical problems. While these kinds of bankruptcies benefit the filer, they are generally done on someone else's schedule. The Kiyosaki bankruptcy could be considered reactionary, but I'm guessing that his attorneys advised him to only file in the event that he couldn't settle the lawsuit for less. This moves him from a reactionary filing to a strategic filing. 

A strategic bankruptcy is planned. These types of bankruptcies involve "pulling the trigger" when the time is right, not right away. Homeowners who find themselves underwater may want to consider a strategic bankruptcy. In a Chapter 13, homeowners can strip underwater second mortgages; this can restor equity to some homes. If a home is too far underwater, it is also possible to surrender the property and gracefully exit a bad investment. 

Corporations use bankruptcy strategically -- just look at GMAC or Kiyosaki. When C-level executives put their companies into bankruptcy, they are not vilified as morally bankrupt individuals. In many cases, they are lionized for making "difficult decisions." It should be no different for individuals. There is absolutely no reason to carry a bad investment when you can cut it loose and reboot your financial outlook.