TRANSPARENCY TUESDAY: Bankruptcy Court records are like a financial colonoscopy, polyps and all

Nightclub impresario Marc Barnes became legendary on the Washington, D.C., party circuit with his exclusive A-list events catering to NBA stars and chart-topping entertainers. But Barnes’ financial unraveling is detailed in decidedly un-glamorous fashion in the pages of bankruptcy filings obtained by The Washington Post.

In the Post’s March 21 magazine, feature writer David Montgomery deftly weaves court records together with insider interviews to piece together how D.C.’s king of nightlife — who once spent $400,000 throwing a bash featuring Beyonce and Destiny’s Child — managed to rack up $16 million in personal and business debts.

Though we normally associate courthouse sleuthing with hard-boiled investigative reporters digging for evidence of corruption, don’t overlook the power of public records to make a personality profile come alive.

The centerpiece of the Post’s legal research, bankruptcy records are a must-know for journalists interested in writing about businesses such as nightclubs that aren’t publicly traded on major stock exchanges. A privately held company is exempt from the exhaustive disclosures that investor-owned companies must file with the U.S. Securities and Exchange Commission. But if a company or its owner has been sued, or has filed for bankruptcy protection, court records can enable a diligent reporter to piece together a revealing financial portrait.

A bankruptcy case initiates in U.S. Bankruptcy Court — there are courts that hear bankruptcy cases in each of the nation’s 94 federal judicial districts, a map of which is available here. Bankruptcy typically begins with a petition filed by the debtor, although it’s also possible for those who are owed money — the creditors — to ask the Bankruptcy Court to declare a debtor bankrupt involuntarily, so the creditors can get their hands on whatever money and property the debtor might have before it’s gone.

Most Bankruptcy Courts have sophisticated clerks’ offices in which case filings are searchable by the name of the debtor. Remember that the debtor might be the individual owner or the business, so a thorough search means checking both personal and corporate bankruptcies.

To give a very simplified overview of the process, what typically happens in a bankruptcy case is this: The debtor files a petition in which he is obligated to estimate everything he owns and everything he owes. He must give reasonable notice to his creditors, who then make their own filings with the Bankruptcy Court laying claim to whatever assets the debtor has left. Often, the court will appoint a trustee, whose job is to gather — and if necessary, sell off — the debtor’s assets and decide which claims get paid. At the conclusion of the process, the debtor walks away with a “discharge” of most debts (though some, like student loans, can survive even bankruptcy).

All of these steps in the process — the debtor’s initial estimate of his assets and debts, the creditors’ claims against the debtor, the trustee’s inventory of money and property — generate a paper trail that is easily followed in the bankruptcy case file.

This might sound like a quick way to get your hands on a lot of boring numbers, but remember that bankruptcy filings are filled with the stories of the once-high-and-mighty who overreached and came crashing to earth, and there’s nothing quite so compelling as a rags-to-riches-to-rags story told well.

For example, in 2003, a Portland, Ore., newspaper used bankruptcy filings to compile a revealing postmortem on an ill-advised $10.5 million investment by Lewis & Clark College in what turned out to be worthless shares of a start-up business that claimed to be able to recycle used motor oil. The risky venture proved doubly costly for President Michael Mooney, who lost his job and his shirt, having personally invested in the failed enterprise.

If you’re profiling a person whose resume includes owning a succession of closely held businesses, there’s an excellent chance that behind one of those resume lines lies a bankruptcy — and behind that bankruptcy lies a story.