Need advice... Business in trouble

[fast girl]

My husband and I own several businesses, some rental properties all with mortgages 80% LTV. Most of our entities are in LLC's. Two of the LLC's we are 50% owners. We have no problems making the payments on them. We don't have any credit card debt, we owe money on our cars and our house.
One of our businesses is seasonal, we are going to be short cash flow by over $100,000. This asset has been re-financed several times and I can not borrow anymore against it, if I sell it for what I owe on it I am looking at a capital gains tax of at least $100,000. This business has been very stressful to own, I've had it for over ten years. Is this just a good time to get rid of it by filing a bancruptcy?

My question is...... if I just quit making my bank payments what happens next? If the bank forcloses on us do they just get that everything that goes with that LLC? Can they make me sell my other rentals? there is really not that much equity in them. If I file bancruptcy can I still keep those rental loans? my home loans? my car loans? will they make me liquidate everything? This is really stressing me out and I just want to live a normal life..... I'm sick of being at the speed of 'race pace' all the time.

My problems aren't about personal debt..... it my businesses that are getting to me. (mainly the big one) Anyone ever been in this situation? anyone got any advise?? PLEASE

[BassBoy]

My problems aren't about personal debt..... it my businesses that are getting to me. (mainly the big one) Anyone ever been in this situation? anyone got any advise?? PLEASE

This forum deals with personal bankruptcy. You need to speak with an experienced bankruptcy lawyer that speacializes in business debts.

[fast girl]

Awww.... C'mon There must be someone that would be able to advise me? Do you know of any other forums like this for business?

thanks for your replies.

fast girl

[Boscoe]

Fast Girl - Yours would be a business chapter 7, you would not need to complete a means test and all debts of the business would be wiped out by your discharge. If it is a business only owned by you and your husband, then it would probably include all personal assets and liabilities too.

But BassBoy is right. You need to speak to a couple of bk attorneys who will file a business bk for you. Much of what you ask is outside of the scope of this forum so I am not sure how accurate all the advice will be for your situation.

[HHM]

I doubt BK would do you any good.

If the loan on the failing business is secured by an asset, the bank's first recourse is against that asset. Does the LLC that controls the failing business hold any other assets? Also, you need to check the loan documentation to see if there is any type of personal gaurantee (i.e. if the business stops making the payment, does they bank have recourse against you or your husband).

A business Chapter 7 is a pointless endeavor (at least a voluntary Chapter 7) becuase it never gets discharged. The trustee simply administers all the business assets (i.e. sells them) and pays claims accordingly...and if there is a personal guarantee, you are still liable.

[Boscoe]

A business Chapter 7 is a pointless endeavor (at least a voluntary Chapter 7) becuase

I hope this is not true, as a business 7 is what I filed....

[HHM]

I hope this is not true, as a business 7 is what I filed....

I guess I should clarify, if a "corporation" or an "LLC", i.e. if a separate legal entity files chapter 7, it is pointless because a "corporate" entity does not receive a discharge.

If you are operating a business, i.e. if you own some investment property, or are a sole proprietorship, then you are filing a "individual" BK but you own income producing assets.

The original poster mentioned she had LLC's...so I was pointing out that if the LLC filed BK, that would probably not do any good, and if she has the income and assets she says she has, it is unlikely she could qualify for an individual chapter 7.

[fast girl]

Most everything we have has mortgages 80%LTV. I do believe I did sign a personal guarentee, but what could they get if theres' really not much equity in what we own personally? What about a deed in leu? what would the chances be of a bank agreeing to do that? is it common? I just feel like life would be so much easier to start over. Thanks for your replies.

[fast girl]

When you say a Chapter 7 never gets discharged, does that mean it only is against the LLC? not me (us) personally??

[HHM]

When you say a Chapter 7 never gets discharged, does that mean it only is against the LLC? not me (us) personally??

Ok...let's back track a bit.

Are the homes owned within an LLC (based on your posts so far, that seems to be the case). Are the homes "actually deeded" in the LLC's name?

An LLC is a separate legal entity. As a separate legal entity, the LLC "can" file chapter 7 bankruptcy, but doing so, for the most part is pointless. All you accomplish is that you turn over all the LLC's assets to the trustee and the trustee figures out what to do with them...in the situation where the LLC is essentially a holding company for real estate, the trustee typically sells the real estate, pays the mortgage holder whatever proceeds he can get...and since the LLC is in bankruptcy and the LLC is the owner of the real estate, the trustee does not have to pay the bank in full, because any remaining balance is simply a debt of the LLC.

The catch is, if you have personally guaranteed the mortgage note, the bank can pursue you for any remaining balance due. Reason being (1) only the LLC filed BK, not you, (2) the bankruptcy of the LLC never gets discharged. (the case will eventually close when there is nothing left for the trustee to administer, but corporate entities do not get the benefit of a discharge.

Based on your original post, I question whether you would qualify for a personal chapter 7. BUT, if the bulk of your debt is business debt (i.e. personal guarantees on Business assets), you can side-step the chapter 7 means test...but you need an attorney to evaluate that scenario for you.

Assuming you can qualify for a "personal" chapter 7, there really is no reason to file a BK on the LLC's. Your ownership interest in the LLC becomes as asset of the BK estate...and therefore the trustee can administer that asset. Moreover, with the personal BK, you discharge your personal guarantee. Assuming the real estate is ONLY deeded in the LLC's name, you simply let the banks foreclose on the properties.

On a side note, if your loans really are 80% LTV, why not sell the properties and pocket the 20% (I am guessing the homes, in this market, probably are not at 80% LTV anymore, otherwise, why would you be coming to this forum).

[biotechsolution]

HHM is right about the LLC's. They will just dissolve out to nothing but the problem comes with the personal guarantee. Unfortunately I think most people are under the false impression that whey they create a LLC that protects them from any liability if the business fails. Reality is when you start your business you nearly always have to personally guarantee it when you start out. That's the catch.

The good thing is you can discharge all those business debts without worring about the means tests. In addition any retirement assets will be protects. Also it has been my experience that when you file your schedule I and J and you have a business debt filing even if you have excess income you still won't be forced into a chapter 13.

Remember, the only way the UST and case trustee can object to 'substantial abuse' is under 707(b). Which is only applicable in 'consumer' debt cases. The other objections under 727 and 707(a) deal with procedure dismissals and nothing relating to disposable income.

Find a good business bankruptcy attorney. Easiest way to find a true business bankruptcy attorney is to ask him if he files Chapter 11 cases. If he does then he is really a businss attorney.

[fast girl]

Thanks!! this is very helpful !! The rental houses are in my name personally. When you file bankrupcy, if we're talking only a small amount of equity in those houses, is it possible for me to "re afirm" my loans with the existing mortgage holders? and then I could still keep the houses? The "only" bad debt I have on the big business would be the bank payment, otherwise everything is paid current. Or would a chapter 13 be the thing to do? re-organization? I would love to dump this business (i'm sick of the stress), Also would the public know whats happening with my business? We are very well known in a small community, this is a very humbling experience.

[Boscoe]

Fast girl - the only way the trustee and a bk judge would let you reaffirm properties other than your primary residence would be if you can show that you can afford the payments each month. In most cases, like mine, that is not possible. But it might be with you since these are income producing and you have tenants and rental income, right?

If more than 50% of your debt is business related, then you probably don't need to complete a means test and can file chapter 7. Definitely talk to a few attorneys who are knowledgeable about this part of the law - many attorneys don't have a clue about it!

[HHM]

Thanks!! this is very helpful !! The rental houses are in my name personally. When you file bankrupcy, if we're talking only a small amount of equity in those houses, is it possible for me to "re afirm" my loans with the existing mortgage holders? and then I could still keep the houses? The "only" bad debt I have on the big business would be the bank payment, otherwise everything is paid current. Or would a chapter 13 be the thing to do? re-organization? I would love to dump this business (i'm sick of the stress), Also would the public know whats happening with my business? We are very well known in a small community, this is a very humbling experience.

If the investment properties truly have equity and you file Chap. 7BK, the trustee is going to take that equity because there is no way to exempt it. Unless you can pay the trustee cash for the value of that equity, the trustee will take control of the real estate and sell it (but that assumes there really is equity), so reaffirming doesn't do you any good because these are non-exempt properties with equity.

I am not sure a chapter 13 would work...first, you need to determine if you even qualify, you can't have more than $307,675 in unsecured debt and no more than $922,975 in "secured" debt to file a chapter 13. (note, my reference is a tad outdated so those numbers may be a bit higher now). And you will probably have to fight pretty hard with the trustee about whether expenses related to investment properties are allowed expenses under a chapter 13.

As for the public knowing...BK is public record, and some communities do publish a list in the local newspaper of everyone who filed BK in a given month or week, and any one can go look if they way. I wouldn't worry about this too much, I bet if you did some research, many of the people you know in your town probably filed BK at some point.

[fast girl]

I just got done talking to my accountant, the one who did the analyisis on how much my capital gains tax might be, its looking more like $140,000 (ouch!) This is going to take a long time to pay off. Has anyone ever gotten a break or a tax forgiveness from the IRS? I know that taxes are not covered under bankcruptsy. I see those ads on TV. Is that what that is? If the other businesses are just breaking even, except my husbands business does pretty well, we make our house payments and cars with his income. I'm thinking maybe I should just get rid of those rental houses and take the equity from them and hide the cash in a box? any other ideas? maybe I don't want to put any of my money in any of the exempt from bankcruptsy accounts because I wouldn't want the bank or IRS to think I have more money to throw away at them??? does this sound right? any suggestions?