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Eric Foster is a business lawyer and debtor rights attorney in Old Saybrook, who has been practicing law for more than 28 years. Foster formerly worked at the Federal Reserve Bank of New York, where he focused on the regulation of the lending activities of banks. Now, Foster advises small business owners and advocates for debtors, helping them negotiate loans or file for bankruptcy.
In a conversation with CT Examiner, Foster shared his perspective on the state of consumer rights in Connecticut.
In the aftermath of the pandemic, what is the state of bankruptcies in Connecticut?
During COVID, there was actually a slowdown in bankruptcies, because people have had paycheck help. We expect that there will be a potentially large upturn in bankruptcies now.
People don’t realize that you can have a substantial amount of income and still qualify for the best type of bankruptcy — Chapter 7. A family with two kids can be making $120,000 a year and a court can still deem them eligible for a full discharge of consumer debt, which doesn’t include student loans, tax liabilities, or personal injury. In most cases, people can keep all of their assets and money. It’s vastly underutilized.
Why do you think more people don’t take advantage of bankruptcy?
It might be because of shame, and maybe a lack of education. People also shy away from it because they think it’s going to ruin their credit score for the rest of their life, which is not true. It will generally bounce back to where it was within 24 to 48 months if you’ve missed no payments, but people are afraid of that. They’re willing to spend tens of thousands to pay creditors just to protect their credit score by 50 points.
What are some of the resources people in Connecticut should know more about when it comes to protecting assets?
Connecticut passed legislation creating a homeowner protection regime that is unique to the country — only three or four other states have something similar.
Because of the financial crisis in 2008, Connecticut adopted a mandatory mediation program required for banks and other mortgage lenders prior to proceeding with the foreclosure process. Say the homeowner can’t make mortgage payments and the lender gets fed up and files a foreclosure suit. In most states, you can be out of your home in 120 days.
But in Connecticut, you have a period where you sit down with a judicially-appointed mediator — not a judge — and your lender. They’re all sitting together in a room, not talking to a judge up on a dais, to examine and evaluate loss mitigation options. It gives the homeowner time to see if they can qualify for a modification, take out a second mortgage with the help of Connecticut’s Emergency Mortgage Assistance Program, or sell the home to a third party and downsize.
What advice do you find yourself giving most often to small business owners?
Succession planning.
Small business owners are not always aware of how to do succession planning when they’re the single owner of a business, and they don’t understand the crisis created when the sole owner of a small business suddenly passes away and their spouse has no experience managing the business.
When that key person is gone, a business that was worth $500,000 can then be worth $70,000.
Why does the value of the business depreciate so dramatically?
The biggest asset in a business is the owner, since without them, the business could get run into the ground.
The best person to sell your business to, as a small business owner, is often an employee, since they’re the most likely candidate to run the business successfully because they’re familiar with the business. They can hire the former owner on as a remote, part-time employee for a few years to smooth out the transition to new ownership and to preserve relationships with existing clients, all the while providing the prior owner with an additional continuing stream of retirement income.