He said "If your not willing to file for bankruptcy and lose everything, your not ready to be a developer."

Depending on your comfort level.Otherwise, the consequences could be bankruptcy. 

And do remember that the student loans will stick with you even through a possible bankruptcy. 

Even if he doesn't intend to sue you, his insurance company almost certainly will (called subrogation).If the house is in your name, they would be sueing you personally, and going after all of your personal assets and income...anything that is in your name is fair game.If the house is in the name of your LLC, they can only go after the LLCs assets.Many people form a different LLC for each property (or every 3-5 properties) for this reason.Similarly, if something like this were to happen, you might have the option of declaring that particular LLC bankrupt without affecting your personal credit (personal loan guarantees notwithstanding), and you might still have several other LLCs that are still operating and financially sound...the bankruptcy of one does not necessarily affect the others.So it's a matter of not putting all your eggs in one basket (and not mixing personal eggs with business eggs!).

Why are you not doing pre bankruptcy planning?

It depends, I've rented to people who filed a bankruptcy after they convinced me that they were forced to foreclose, blah blah blah, and it turned out to be a nightmare.

If my read between the lines is correct, this one deal has a good chance to lead to bankruptcy.  

For over 20 years he's fancied himself quite the financial guru, a real estate mogul, lots of investments, lots of money, wealth etc...In 2008 he filed for bankruptcy for millions due to his immense over leverage of his latest real estate projects.

When you call in Wells Fargo has many different departments (customer service, collections, bankruptcy, loss mitigation, short sale, foreclosure, etc.).

Then seller financing is useful for those "near miss" borrowers, those that fail to qualify due to time on the job or a past bankruptcy issue where such issues can be cured in time.