Rep. Ruben Hinojosa, an eight-term Democrat from Texas, has filed Chapter 11 bankruptcy after a $2.6 million arbitration award was leveled against him.
"I have filed for bankruptcy protection under Title 11, Chapter 11 of the United States Code," Hinojosa said in a carefully worded statement. "My filing for bankruptcy was the result of the business loan I personally guaranteed for my family business, H&H Meat Products Co., Inc. (herein "H&H"), when it was doing well financially. Although over the last 14 years, I had no managerial responsibility or oversight of H&H, I remained financially obligated on a bank line of credit of H&H when it was forced into bankruptcy due to the recent economic downturn and financial market meltdown."
Hinojosa added: "I have done everything humanly possible to avoid filing for bankruptcy protection to no avail. The bank debt of H&H was more than I could handle financially. It is my sincere desire to exit bankruptcy protection as soon as possible."
Hinojosa personally guaranteed a business loan. When that business loan was discharged in a business bankruptcy, the creditors went after him. Like most Americans he wanted to fulfill his obligations to pay the debt, but who can afford to pay a $2 million debt while only earning $200,000 a year? It's quite telling that Hinojosa painstakingly makes it clear that he was not over the operations of the company. Many people mistakenly assume that because a company goes into bankruptcy that they somehow failed to manage their business correctly.
But the truth is that sometimes economic forces are mostly responsible for a company's need to seek bankruptcy relief just as Hinojosa later suggests. Debtors who personally guarantee business loans must be prepared for scenarios such as the one faced by Hinojosa. Just because you discharge the debt in a business bankruptcy doesn't mean that you will automatically be personally free from the debt.