The Wall Street Journal reported this week on a man whose bankruptcy case has outlived him. And he’s not too sympathetic a character: after defrauding clients of his business out of $19 billion, the man was reportedly put into federal prison.

Sources indicate that the fraudster, Barry Stokes, died in a hospital there before his bankruptcy trustee had been able to work through his case. As of now, reports note that:

• Hidden assets are still missing: This unsavory fellow apparently owned a lot of (somewhat) valuable art but hid it before his death. Most was found, but the trustee is still hunting some of it down. The proceeds from a sale of the art would go to his creditors.
• Liquidation won’t help much: Unfortunately, even though some pieces of the art could be worth upwards of $25,000, the money won’t do much for his debts of more than $30 million.

Fraudster Used Clients’ Retirement Funds to Buy Art

The details of this particular bankruptcy case are heartbreaking. Too often, individuals struggling with debt dip into their retirement accounts in an effort to stave off creditors and avoid filing for bankruptcy. And in many cases, people like this end up in bankruptcy anyway, without any nest egg for their retirement.

In this case, Stokes ran a business that managed people’s retirement funds and skimmed whatever he wanted from those funds for personal purchases. Now, his clients are his creditors in bankruptcy and have filed claims for more than $30 million.

The worst part? Because Stokes reportedly didn’t have much in the way of valuable assets, these people will likely not see much of their retirement money again!

Bankruptcy & Retirement Funds

For the record, retirement funds have a special place in bankruptcy:

• Exempt from creditors: Whether you file for Chapter 7 or Chapter 13 bankruptcy, the bankruptcy court typically will not go after your retirement funds during a bankruptcy case. The idea is that these funds will keep you financially sound in the future and so it’s in everyone’s best interest to leave them alone.
• Heavily taxed: What’s worse, people who withdraw retirement funds early face serious tax penalties. That means they don’t get the full benefit of the funds either in the present or the future!
• Irreplaceable: Most of us accumulate money for retirement gradually, over several decades. Using that money for debts can seriously damage your long-term financial health because it’s close to impossible to replenish the supply.

The bottom line about retirement funds: they’re safe in bankruptcy. If your nest egg is the only thing between you and the bankruptcy court, you might want to keep it safe and talk to a bankruptcy attorney about filing a petition.

We’ve all heard stories about lottery winners ending up in bankruptcy court, so it’s interesting to hear a twist on the usual saga. According to Time magazine, Patricia Kluge (once called "the richest divorcée in history") has filed for Chapter 7 bankruptcy.

This, after her 1990 divorce left her with a reported $1 billion settlement. Astonishing as it is, it teaches some important lessons about money, debt and bankruptcy.

Why the Very Rich Go Bankrupt

It’s easy to imagine that if we won the lottery, all our money problems would go away. But as Ms. Kluge shows us, it’s not about how much money you have, it’s about how you manage it. This lesson is valuable whether we’re billionaires or recent bankruptcy filers.

So how can you make sure you’re managing your money well?

• Know what you make: Seriously. Look at your income and know exactly how many dollars flow into your bank account each month.
• Know what you spend: With digital banking and tracking tools, this is easier than ever. But a surprising number of people don’t bother keeping track of where their money goes. Until you actually figure out how you’re spending your money, you won’t be able to make meaningful financial decisions.
• Make a plan: Some people would call this a “budget.” But lots of us don’t like that word. So instead, plan where you want your money to go. Plan for some to go to savings, some to go to bills, and some to go to treats.
• Look ahead: We’re often blindsided by expenses that we “didn’t see coming.” But if you haven’t taken your car in for a checkup in years (or haven’t seen the dentist in ages), you’re playing a risky game. Small maintenance costs are usually cheaper than major repairs or replacements, so keep track of the state of your health and appliances.
• Look behind: One way to plan for future emergencies is to review your expenses of the last few months and years. First kid needed braces? Better start saving for the second. Air conditioning on the fritz? Put some money away for next summer. It’s natural to ignore problems we don’t want to deal with, but that can lead to long-term turmoil in your finances.

Most of us won’t have the chance to squander a billion dollars, but anyone who files for bankruptcy is eligible for a shiny new financial start at the end of the case. It’s important for all of us to remember that bankruptcy is the beginning of a process – careful financial management in the post-bankruptcy period can make the difference between financial floundering and financial success.