Consultant Turns Bankruptcy Into Lesson That Pays

When Marilyn August went bankrupt five years ago, she thought she had lost everything.

What she found was a new career.

Today she operates the August Group, a Huntington Beach-based consulting firm for small businesses and individuals who want to learn to manage money better. Through her “Money, Wealth & Wisdom” seminars she helps people avoid having to file for bankruptcy like she did.

She also consults with the Consumer Credit Counseling Service of Orange County in Tustin and the California Small Business Development Center in Santa Ana, where she helps clients learn business budgeting and cash management. They are skills she learned the hard way.

In 1986, August was looking for a career change. She was a computer training instructor for Automatic Data Processing in La Palma. Drawn to the idea of having her own business, she looked into multilevel marketing programs and launched her own Mary Kay cosmetics distributorship.

“It sounded good, and I wanted out of my job,” August said. To start out she received a bill-consolidation loan for enough to finance her inventory and pay off the balances on her existing credit cards.

“That was the hook,” she said. “I still had my credit cards. And as long as I thought the million (dollars) was just around the corner, it was easy to keep spending.”

But her cosmetics business was not bringing in enough money. To keep afloat, she lived on her credit cards. “In effect, I was financing the business that way,” she said.

Before long, she was $15,000 in debt, had exhausted the credit line on her five credit cards and was fresh out of friends and family members willing to bail her out.

Making the decision to file for bankruptcy was agonizing. “It was very much my bottom,” she said. “But once I did it, it was like a huge vise lifted off my shoulders.”

Relief was quickly followed by anger, however. “I wondered, where were all the organizations to help people like me?” she said. With a background in corporate training and development, she decided that there must be a way to help people before they get to the bankruptcy stage, or to help them through once they get there.

Her intuition paid off, and demand for her classes has been steadily growing.

People can go broke making $200,000 a year just as easily as they can making one-tenth as much, she said. It has to do with how they manage their money.

And credit cards are a big part of the problem. People can be very adept at rationalizing spending their future dollars, according to August. “They think gross dollars in the door is money in their pockets, but it’s not true. Or they think they’re just about to close the big deal. Or they just think they’re too busy running the business to worry about managing their cash.”

In each case they don’t see a problem using their credit cards to tide them over. But credit cards can be a trap, especially for anyone who is a compulsive spender. What’s more, August said, people are often trying to buy intangible things, such as success or acceptance, when using their cards.

“I used mine because I needed to prove myself and look good while I was doing it,” August said. “I felt if I had the appearance of success, success would follow.”

Today August recommends against filing for bankruptcy if there is any possibility of working out debts through an alternative strategy. The blemish that a bankruptcy filing leaves on a person’s credit record is bad enough to affect all future business dealings.

“I can’t get credit cards,” she said. “It’s an enormous hindrance for airline travel, renting cars and making hotel reservations.” August said she runs her business strictly with cash and is looking for a secured credit card (one that is backed by cash in a bank account) for use in emergencies.

“But the other thing is the emotional bankruptcy,” she said. “I had broken trust with myself, and it took a long time to get that trust back.

“There may be no debtors’ prison in the United States,” she said. “But the prison was inside my head.”