When is the best time to file Ch 13?

[scooter64dog]

Here is my situation. I opened a restaurant over a year ago, right when the credit crunch hit. We haven't been able to break even, and could not afford to pay the rent for the past few months. The landlord is going to send us a letter suing us for the back rent owed, and I'm not sure when to file for bankruptcy.

Should I wait until I receive the letter, or should I file beforehand?

[justbroke]

Here is my situation. I opened a restaurant over a year ago, right when the credit crunch hit. We haven't been able to break even, and could not afford to pay the rent for the past few months. The landlord is going to send us a letter suing us for the back rent owed, and I'm not sure when to file for bankruptcy.

Should I wait until I receive the letter, or should I file beforehand?

Get the Notice of Default or 3-day Notice or whatever they call it in your State.

Then file Chapter 13. (Note: hopefully, you're talking about a restaurant owned by an individual debtor?) Also you need to worry about debt limits, which are about $330K for unsecured debts and $1,000,000 for secured debts.

Then, you can motion to reject non-residential lease. This is a contested matter, so the landlord will probably come at you. You just need to prove that it's not necessary for effective reorganization of the debtor. Also, the landlord can file an unsecured claim for the breached value of the lease.

You may need to work with a lawyer who specializes in small business and Executory Contracts and Leases.

[riskybiz]

in same boat

Hi. I'm in a similar position. I signed a commercial lease with my husband as personal guarantors. I don't know what I was thinking but we didn't have our financing in place yet..back in 07....never thought it would be an issue. It was new construction. Our properties lost equity and the banks collapsed and we are now unable to get a loan. If the landlord won't accept a buyout we have to file bankruptcy since we can't pay 3700 for a space that isn't generating any revenue. My understanding is that the landlord will only get one year's rent or 15% of 3 yrs..which ever is greater. It is considered unsecured debt and they'll actually only get what we can pay over 5 yrs. We'll have to walk away from two houses so the landlord will only get about 12k over the next 5 yrs according to the bankruptcy attorney we gave our info. to...crazy. It would be much better for them to take a buyout. I would even get three jobs if there was any way to pay them a buyout.

Scooterdog...if you get any info. that might help me please let me know. I personally think it is best to file sooner than later..the quicker to a fresh start. But first stop using cc for 90 days..make sure you haven't done a bal. tr for 70 days. Keep all cash receipts for back up.

[scooter64dog]

Justbroke, the restaurant was leased through the corporation, with two personal guarantors. It's rather difficult because I don't have any assets under my name, but the other person has homes, etc. So since he stands to lose so much more, I thought that to help him save his properties, we'd file a Ch 13 instead of a Ch 7.

But does that make sense? Could I file a C7 and he file a C13? We are friends, not married or anything.

[scooter64dog]

And the debt limits are another thing. This is a large restaurant, with the rent about $30k a month.

[justbroke]

So since he stands to lose so much more, I thought that to help him save his properties, we'd file a Ch 13 instead of a Ch 7.

Who do you mean when you write "we'd file a Ch. 13 instead"? We, the business, or "we" your partner and yourself???

Justbroke, the restaurant was leased through the corporation, with two personal guarantors. It's rather difficult because I don't have any assets under my name, but the other person has homes, etc. So since he stands to lose so much more, I thought that to help him save his properties, we'd file a Ch 13 instead of a Ch 7.

But does that make sense? Could I file a C7 and he file a C13? We are friends, not married or anything.

What kind of corporation is that? LLC? Partnership? "S" Corp?

Don't know. It's going to get interesting for sure. You really need a good consult.

First, you'll have to close and liquidate the business in a Chapter 7. Since business debt is not dischargeable, they may come after the guarantors. If they do, then you'll file a personal Chapter 7 or 13 (if you qualify... otherwise an "11").

(I don't think you can do the Chapter 13 anyhow... because of the debt limits ($336,900 for unsecured debts), and you're pushing it with a $30K x 12 = $360K possible unsecured claim being filed (which may be split... but I don't know).)

You are outside my area of meager expertise (if you even want to call it that).

[riskybiz]

chp 13/ chp7

Hi Scooterdog,

I'm not an expert but this is based on a lot of research since I'm in a similar situation. Since you signed as a personal guarantor they will most likely come right after you. If you have any disposable income left at the end of the month it will be hard to claim a chap 7. You would fall in a chp. 13. The issue is how much debt you'll have. It sounds like you have little or no personal debt. It is business debt. I did hear something about being able to still claim a chp 7 if your business debt was over 51% of you total debt. You need a good business bankruptcy attorney who can explain to you if that is correct.
If you are in a lease you can either reject it or assume it once you file bankruptcy. If you reject it then they will come after you personally for one year's rent or 15% of three years, whichever is greater since you personally guaranteed it. You won't necessarily have to pay that amt. For example if you owe 1k a mo for 12 mo then you'd technically owe 12k over 5 yrs under a chp 13. If your disposable income was only 100.00 per mo. and that was the only debt you owed then they would only get about 1200.00 from you over 5 yrs because that's all that your disposable income would allow for. The rejection of the lease is considered unsecured debt. My bankruptcy attorney said they could possibly try to charge you for some of the utility costs also depending on how it is worded in the lease. The only other claim they could have is if you turned off the heat for ex. and froze the pipes causing negligent damage.

If you're unsecured debt is over a certain limit...like 330k then you'd have to file a chp 11 which is similar to a chp 13 just a little more confusing and expensive.

I felt better after consulting with bankruptcy attorneys. I made a huge list of questions and was able to do some free over the phone consultations. The one I'm working with even met me on a Sunday for free.

As for your business partner they'd have to do the same thing and file on their own. It sounds like it is beneficial for them to do a chp 13 or chp 11 if they have assets that they want to hold on to. If you were both able to do a chp 7 somehow it seems better just in my personal opinion.

The thought of giving away your disposable income over 5 yrs and hoping that you don't fail out of the plan because of a lay off etc. is scary to me. This forum seems really helpful though since there seem to be so many of us facing this. The economy is bad..