File Chapter 7 vs Doing Nothing

[Seattle Couple]

My wife and I got an SBA loan without collateral (i.e. do not own a house or any other assets), but realizing that our business (LLC) from the start did not have enough cash flow. We have been in business for 3 plus months and in GOOD STANDING, but want to start educating ourselves about how to end appropriately with some dignity if we have to go this route. Due to no assets, it limits our ability to ask for more capital or cash flow for our business.

QUESTION: Being fairly young and no collateral or assets involved, is it better to file Chapter 7 to clear all debt (including credit cards) to have a "fresh start" or DO NOTHING? If we did nothing (not pay, etc), our bank could not do much (i.e lawsuit, etc) because we don't own any assets, right? Any suggestions or feedback on both scenarios and the plus and minus of both options?

GENERAL PROFILE:
State of WA residents
Early Thirties Couple w/ no kids
Renters (do not own house or any other assets)
Our 90' car is paid in full
No history of bankruptcy, collections, etc.
Our salaries are way below the median income of WA state
Know we would pass the The Means Test to qualify
Total Debt: $150K business loan
BREAKDOWN: SBA Loan: $75K; Two Equip Lease: $75K
All low interests
Personal Credit Cards: $40K. (Before we started our business, we had fairly good credit behavior)

Business loan(s) and personal credit card debts ALL IN GOOD STANDING (no late payments, collections, etc.) with very low interests.

We just want to explore ALL our options to make an informed decision to minimize the negative effects if we have to pick ourselves up the first time and keep playing the game of life. By the way, why do major banks finance "small businesses" when they know that they do not have enougth cash flow from the beginning or any other resources for additional capital. We can't believe we were this naive.

Side Question: when husband and wife, only members for LLC, do we file together (joint) or have to file separate for Chapter 7?

[SinkingFast]

I don't know first hand from experience, but others who owned their own small businesses have related their Consults and conversations here.

If you go the business route, you're looking at totally different BK. Ch 7 and Ch 13 are for personal debts.

Evidently, as much as Congress managed to screw up personal BK, business BK is even worse. Several folk posted their attnys advised them to let the business die a natural death. After the business was dead, then file personal BK.

Creditors can get Judgements against you. Place liens on your car. Attach your wages if you work other jobs and your State allows for Garnishment.

Judgements and liens are public record that can show on your Credit Reports.

Even tho you think you don't have any significant tangible assets, Creditors can wreak havoc in your lives.

[DeadManCrawling]

Is the business a corporation or sole proprietorship?

If a corp, you could BK the business by itself.

If a sole proprietor, all would be counted as the same thing.

Keep in mind that when counting debts, you must also include car loans, any mortgages,e tc.

If it ll adds up, all cards and everything (including what is owed on any mortgage), and you STILL have a higher % of business debt, you generally can bypass the means test and go to a ch7 no questions asked.

Personally, I would prefer a BK to having annoying calls and complications for years. Also, a judgement, if obtained, could in many states, be collected on for years past a BK timeframe. Meaning, that if you are doing well financially in say 18 years, the could STILL come after you-and your newfound financial success.

Consult a few attorneys.

Business and BK are far more complicated in general than straight personal bk.

welcome, and good luck!

-dmc

[Seattle Couple]

Thanks for the feedback. This BK forum looks like a good place to learn. If we seek QUALIFIED attorneys, where to look, what experience or skills are we looking for, and what are the cost range for filing Chapter 7 or getting any other advice from an attorney? Want to do it right. Attorneys can cost an arm or leg. Hope to read more responses and be part of this community. Thanks-Seattle Couple.

[DeadManCrawling]

The forum is a Godsend. It has helped me and many others recover from the edge of lunacy, I think.

I would look for attorneys who specialize in BK and do most of their work in this arena. Also, if you can, find an attorney who works as a trustee int he bk system. Mine used to, no longer does, but that means he knows the inner machinations of the process, and had friends on the "inside" who may (or may not) give him a little edge over other attorneys.

You can call the bankruptcy court and ask for a few names of attorneys who are also trustees, or even find it on their website.

In any event, make sure they answer your questions-all will give free consultations-and that YOU are comfortable with him/her. Remember, these people may be helping you through BK but YOU are the boss, you are paying THEM. If you are at all uneasy with any answers or their personality, move on to the next in line.

I have a business that I intend to continue running through a personal chapter 13 and have posted numerous times about the is and outs of business bk, but not fromt he same exact angle as you. Run some seraches using that nifty "search" function with the prases that concern you. The wealth of information on this site, though not actual legal advice, is worth more than months inside an attorneys head.

-dmc

[lrprn]

First of all, since your signature mentions Seattle, is it safe to assume you live in Washington state? If you do, then the state median income for a family of two is $56,126. Is your combined income less than that? If it is, then it's likely you can file Ch 7. However, if it's over that, then being able to file Ch 7 may not be possible. And if your business is involved, then you really need to find a good lawyer, because mixing business and personal debts is always a red flag to bankruptcy trustees.

As far as whether filing bankruptcy or just doing nothing is preferable in your situation, I would choose bankruptcy hands-down. You are both young and have many years ahead of you. Just because you are asset-free now does not mean you will always be asset-free. Unless you wipe your debts out through bankruptcy, when you do have assets, many of your old creditors can be waiting for you up to 20 or more years from now. If you have the money to pay a lawyer, then it's a no brainer for me....file bankruptcy wins hands down.

By the way, why do major banks finance "small businesses" when they know that they do not have enougth cash flow from the beginning or any other resources for additional capital.

Because nothing in our US laws requires any lender to assess whether you can actually afford to pay back whatever they loan you. They made sure through large campaign contributions to Congress and the state legislatures for decades that they won't be held responsible for determining you are able to pay back anything ahead of time, but then have every legal power at their multi-million dollar disposal to go after you and your assets as soon you can't pay on time. The only protection you have is to understand the legal implication of every little word in the contracts while the lenders do everything in their power to entice you to sign on the bottom line. No wonder the number of bankruptcies and foreclosures are climbing in every state in the US.

[SinkingFast]

Be sure to ask if the Consult is free.

While most are, some attnys do charge a fee equal to 1 billable hour for their time. If you decide to hire them, those attnys generally apply the Consult fee to their service charge.

Don't expect to get a Means Test run during a Consult. Consults are "Meet and Greet" and to get a general opinion about your particular case. There will be a lot of "if's", "buts", and "maybes" during that chat.

Look up your Court's home web page. See who the Panel or Standing Trustees in your area are. Many Trustees are practicing BK attnys themselves. Don't visit them all, tho. You don't want to taint your Trustee pool. If you do, the Court will have to pull in a Trustee from another Court just to hear your case. It could create a mess.

BK attnys are a close knit community. They all know each other. The attnys all know what to expect from the Standing Trustees in your Court. If you taint the Trustee pool and they have to bring in an outsider, heavens only knows what the "new guy" or gal would do.

You can also check the Martindale Peer Review to see if prospective attnys are Peer Review rated. AV is the highest rating an attny can get. BV will also be a very good attny.

[wrinkleigh]

We had an S corp, but we had a mixture of business cc's and charges FOR the business on personal cc's. Our attorney advised us to let the business die, and file for personal bk.

Because most business cc's have a personal guarantee on them. Meaning even though they are in the business name, they have a personal guarantee attached (even thought you may not realize it.). So by doing a personal ch7, we discharged all of the debt in OUR name, and made it impossible for the business cards to come after us personally. The companies can still sue the business for the money -- however, the business is closed with no assets, so they wont get anything. Our attorney told us the law could still come knocking on our door to serve us for the business, and if that happened, we would have to answer them in court, but that most likely they would go away, when they realize there is nothing to collect from the business, and our personal bk protects us as individuals.

A business bk does not discharge debt. A business bk basically takes any assets you have and divides them out, and then the trustee tells the companies there is nothing left. It is also VERY expensive, if I remember correctly, the filing fee alone is $2800.00, and attorney fees are much higher than that.

I was very nervous at the start of all of this because we had business debt, debt over $100,000 -- both of these are flags for the UST to get involved. But in our case, we sailed right through. No one batted an eye. We were discharged and closed this week.

Now one day we could have someone knocking on our door, but as our attorney said, we'll cross that bridge when we get to it.

Good luck to you.

[Seattle Couple]

Any Experience With Sba Loan And Businessbk/personal Bk

HAS ANYONE HAD AN SBA LOAN? How does business bk and especially PERSONAL BK work with SBA loan?

Ok, it sounds like let the business "die" and then what happens to our SBA loan with our BANK (probable)? If anyone had experience with their corporation and how it played out with their bank, we would love to hear from you.


P.S. WRINKLEIGH: what does "UST" stand for and what could happen?


THANKS FOR THE COMMENTS SO FAR, WOULD LOVE TO HEAR MORE...

HAVE A GREAT DAY, Seattle Couple.

[DeadManCrawling]

UST stands for US Trustee. He/she is the most important person in the case. Their role is as eyes/ears for the judge, which may actually make him or her MORE important than the judge.

I have a business that is still running, so my case is different, but here's my understanding:

Couple things about business bk:

If the business IS incorporated, you have different options.

1. BK for the business only, which can be expensive and would leave you on the hook for anything personally guaranteed-I am assuming you did guarantee things personally.

2. BK for both you and the business, which would wipe out all debts. Again, business side is more expensive by far than personal bk.

3. Personal BK only, which would discharge all debts for you and discharge your obligation on behalf of the personally guaranteed business debt. You would essentially close up shop (if not already done) and return equipment, inventory, and turn over the keys to any property the business owns or leases.

The business would continue to be liable, but you would not. This means that you could never again operate in the name of the business without risking business creditors coming after you.

There is no chapter 7 for business. Only chapter 13 and chapter 11. If you wished to handle the business side on your own, you would "become the trustee". This woud mean informing all business creditors that the business is ceasing operations and liquidating all of its assets-which would then by law have to be distributed to business creditors. This is a rarely seen form of bk, and not one I would recommend at all. It also would leave you personally liable for anything you personally guaranteed.

It sounds like personal bk and letting the business die would serve all your needs.

The SBA loan would be discharged PERSONALLY, as noted above, but the business would continue to be liable. You wouldn't.

If the business is essentially dead, there would be nothing to collect, of course, and it should take care of everything.

However, I would remove any funds you have in the same bank that you obtained the loan from. They may have the right to seize any cash, savings, or other accounts to satisfy a portion of the debt.

Hope that helps. Business and personal bk mixed are a complicated matter. Do see an attorney, if you have not already.

Good luck

-dmc

[Seattle Couple]

Have Specific Questions...need Help!

FIRST QUESTION: Allowing the business to "die", what would happen to our equipment leases that we have? Does the leasing companies collect what is theirs and give us what we owe after they sell the equipments? Due to our business fairly new, our equipment would not have much depreciation, so that would help, right?


SECOND QUESTION: Does the BK forum recommend or not to communicate with our three lenders to find out the the difference (after they collect their assets-equipments) to figure out our remaining balances BEFORE WE END OUR BUSINESS (to get more info of what we REALLY OWE and if can we repay it back)?


THIRD QUESTION: We really do want to try to be "responsible" and somehow pay our business loan and leases if possible if the balance and payments are affordable. ONLY real concern are the PERSONAL CCs that we have been living on during our business startup phase. Should we tell all lenders:
A. We are not going to have enough cash flow?
B. We will file business bk?
C. We will file personal bk?

We do NOT want to give the upper hand to the lenders to get a head start and try to make the outcome worst for us. HOW AND WHEN DID YOU COMMUNICATE TO YOUR LENDERS TO TELL (HOW MUCH OR NOTHING) OF YOUR ATTENTIONS?


BK FORUM: TOUGH QUESTIONS, BUT LOVE TO HEAR MORE ABOUT HOW TO END A BUSINESS AND WHAT YOUR EXPERIENCE WAS.

My wife is telling me that I am addicted to this BKFORUM. An recovery centers for this type of behavior...have to check, have to write, have so many questions, etc...ok, everyone is so nice here.

[DeadManCrawling]

I know we keep saying this, but you NEED to see an attorney. Every BK district is different.

If you intend to pay back what you owe, as you state, you COULD consider a chapter 13 business bk-if there's any chance at all the business could still make money. In this scenario, you would continue to operate the business and pay creditors as normal. Something does not "feel" right to me in this scenario-specifically that if you COULD afford to pay, you would be.

If you let the business "die", and file bk, the equipment owners would come take back the items you have leased. Likely they would lease them out to another business. Your obligation ends there, if you file personal bk. I know you may feel an ethical or moral duty to repay, but that is a road strewn with deep pitfalls and treacherous weather. Why would you file BK and still try to pay them back? BK is to give you a fresh start.

I am sure the businesses you leased from would be more than happy to figure out what you owe, and allow you to pay them. Why on earth would you, though? Remember, the purpose of BK is to get that monkey off your back and let you regroup to take care of yourself and your family-NOT to continue taking care of expenses for a business that will no longer exist.

Chapter 13 on a personal level will pay back SOME of the money you owe and allow you to retain all your personal assets while surrendering the leased items and business property.

I would not tell the lenders anything at all until:

A. You have retained an attorney-this IS his job, after all, along witht he bk courts.

B. You have protected any accounts you have with the lenders in question. Also note that you should not empty business accounts without a darn good reason-payroll, for instance. If THAT money simply disappears, you will have a lot of people asking questions you do not want to answer. The lender(s) are entitled to that money and any accounts receivable that have not yet been collected.


From reading what you wrote, it sounds as if you are hoping to "minimize" the amount you owe, which would be appropriate in a chapter 13 personal, where you pay back a portion of the debts over time and retain assets while reaffirming debts on assets you wish to keep.

Since you are on the chapter 7 forum, understand that in chapter 7 it really makes little difference if you owe 10k or 100k. There ARE limits, I think it's about 967k or so now. As long as you are below the upper limit, the AMOUNT you owe really doesn't mean anything.

Additionally, to keep a house or car, or other item you owe on, you MUST be current in your payments. Though yo don't own these things, there may be other items you pay on which you want to retain and you may want to consider Chapter 13, which allows you to get caught up on those kinds of things.

Otherwise, it looks like a 7 is going to be your best shot. Even then, make sure to check your local exemptions to make sure all of your property, car, etc, is covered and will be exempt from your bk.

-dmc

[wrinkleigh]

If you are living on your cc's (as we were), it will probably be in your best interest to file a 7, and relieve your personal obligation.

Once you default on your leases, you will NOT be getting any money back from anyone if they sell your equipment. Now -- how to give it back to them is another thing all together, and I dont know. Maybe someone with more experience in this area will chime in here.

If the business is closed an dead, no one can get money from it. If there is no money to distribute, it wont do any good for you to file a Business bankruptcy, because -- again-- a CH 11 does not discharge debts. Those will stay out there forever, but YOU wont be personally liable if you have filed a CH 7.

As far as the SBA loan, it depends on whether it was personally guaranteed, it probably was. The ch 7 will protect you personally.

Good luck to you.

[emoney]

If your goal is to fail you are on the right path. Yes I am trying to get your attention any way I can.
This business, I hope was your best dream, and now it may be your nightmaire.
Why is the question??? I hope it is not too late for you to fix your situation and make your dream come true.
I would develop a game plan for your business and then work your plan.
There is some logic in considering other options, but I am afraid from your emails your "other options" are becoming your business plan to fail.
My goal is to give you friendly kick where you need it and make your dream work.
Best of luck,
emoney

[Seattle Couple]

To Clarify...

So far, we understand that business bk is NOT worth it (let it die most likely) and CONSULT with attorney regarding business & personal bk because it's complicated. Chapter 7, you cannot file with business bk. We understand all this and we will consult with an attorney soon!


To help with our questions and maybe our intention of our situation:

First, we would like to make an informed decision (if we knew how much we owed after returning the equipments back if possible and know how the SBA loan would play out) to see IF WE CAN AFFORD the balance and our personal expenses (CCs).

I feel responsible, where I got my wife and I into this mess that we would try our BEST to deal with the consequences of starting a business. Overall, if we can end appropriately (if there is such thing) and be able to pay back of what we CAN then it would be something to consider, because we do not want bk if possible. AFTER our startup business, I think my wife and I can get decent jobs and be able to pay a little back and survive HOPEFULLY.

TO CLARIFY OUR SITUATION:

NO Income for both of us (living on our personal CCs)
NO personal savings, etc.
Business has no (very little) cash (fairly new business)
No other personal assets to get more capital or cash flow (also fairly new business)
SBA loan is personally guranteed
Our personal assets is none (no house, etc.)
Yikes..personal CCs are $40K w/ three cards
FEELING THE SQUEEZE of how we are going to live and pay our business and personal debts.

We hope this helps and we do appreciate your time and feedback on our situation and bk -Seattle Couple.