Business Owner - Our Chapter 7 situation

[businessman]

I've spent a lot of time on these forums, and have gotten a lot of useful information. However, I need some additional insight with our particular situation before we spend money on a lawyer.

I'm married and own a business (LLC) with two locations. Our businesses were doing really well before the recession, and we got them started with our personal credit cards since no one would give us an SBA loan despite a credit score of 720. So, including a personal loan from a Credit Union, we have about $100K in unsecured debt, which comes to about $2500-$3000 in minimum payments. Since the recession, our income has dropped about 50%. My wife was helping with the businesses, but is now substitute teaching since that brings in some extra income.

We burned through all of our capital attempting to stay current with our debts for about 7 months, and then began to fall behind on our bills. We are currently about 4-5 months behind on all our unsecured payments, and have just received a letter from Chase legal that says they are suing us for the $24K that we owe them for our Chase card. Perhaps we've waited too long to do something, but we're in uncharted waters here. We've considered debt settlement, but are afraid of the lawsuits we could be hit with in the meantime.

Our income varies from month to month depending on the the business revenue. Our average monthly gross revenue right now is ~$26K/mo., about $6300/mo. after ~21K/mo. business expenses. Our house payment is ~$5700/mo., and we're currently in an attempted modification with First Horizon using a 3rd party negotiator. We're not paying it right now, which is the only way we've been able to keep up with our student loans, car payments, home bills, etc.

We own a home that is worth $250K less than what we bought it for in Nov. '06. I have a leased Jeep, and my wife has a 2007 Chevy Tahoe that is worth about 25K...and we still owe about 38K on it. We don't have anything else of substantial value in our home besides a 60" Plasma TV and a couple of couches that are several years old.

My specific questions about our situation are:

1. Do we appear to be a candidate for Chapter 7?
2. We expect a tax return for about $9K. Should we wait until after we receive that to file?
3. What should we do about the pending judgement with Chase in the meantime?
4. What assets are we likely to lose?

I appreciate any and all feedback that might educate me more about this predicament we're in. I never thought we'd be here when our businesses were doing so well back in 2007.

[frogger]

My specific questions about our situation are:

1. Do we appear to be a candidate for Chapter 7?
2. We expect a tax return for about $9K. Should we wait until after we receive that to file?
3. What should we do about the pending judgement with Chase in the meantime?
4. What assets are we likely to lose?

I appreciate any and all feedback that might educate me more about this predicament we're in. I never thought we'd be here when our businesses were doing so well back in 2007.

1. Probably. However - you need to talk to a bk attorney.
2. Possibly. That can be part of your planning. You're going to need to come up with money to pay for your bk and your living expenses.
3. You don't have a pending judgement with Chase. You have a letter from them stating that they are going to sue. Or.... does the letter state that they "might" sue. If they're haven't filed suit yet, you still have time. That can probably be delayed long enough to plan more.
4. All business assets, unless deemed of no value by the court.

You're actually going to have 2 bk cases. One for you, and one for your LLC. You have exemptions, your LLC does not.

I have learned a few things in this journey. One of them is that my corp will never own vehicles again. I'll personally own them and lease them to the corp. If I owned them, I could exempt them. But alas... the corp does, so I'll have to buy them back if I want them.

You're among friends here. None of us thought we'd be in this situation. I too was bringing in some big $$$ a few years ago, but things change.

Looking back, I was bringing in the $$$, however was not making the $$$. Big difference.

I should have done this 5 years ago. Good luck to you.

[businessman]

We just wanted to file for personal bankruptcy and keep our businesses running...otherwise we won't be able to afford to even rent an apartment. Doesn't the LLC protect our businesses? After all, the unsecured debts are all personal cards...none of them tied to the business.

[frogger]

YOU are tied to the business. Presuming that you own the LLC, then it is an asset that is up for grabs.

The initials LLC stands for Limited Liability Corporation. The LLC helps to protect you personally from any corporate liability. But, I'll bet you that you have intermingled personal and corporate funds in there somewhere, if you're like the rest of us.

The corporate shield has probably been pierced.

[StartingOver08]

You may not have to file BK for the business. HOWEVER, the LLC is considered an asset of your personal BK estate once you file.

This is not a slam dunk Ch 7. It is a little more complex because of the business, so you need to make sure that the BK attorney you select is well versed in filing BK when you own a small business. Here is a link to help you determine if just you or both you and the business will file: http://www.moranlaw.net/business-bankruptcy-FAQs.htm

One of the surprises I learned when I was getting informtion to file was that the A/R for the business as of the filing date belong to the Trustee! This naturally involved making sure the timing on the filing was right: when my A/R was at its lowest. The income you earn after filing is yours. Do you have a retail type business with inventory or a service type business with contracts or something else?

[ToughSpot]

business man is this a personal services business that requires you or your expertise? Or could the trustee easily take over and run the business or sell it to a competitor?

[frogger]

One of the surprises I learned when I was getting informtion to file was that the A/R for the business as of the filing date belong to the Trustee! This naturally involved making sure the timing on the filing was right: when my A/R was at its lowest.

I learned that too. That's one of the reasons for the delay in filing on my part. You can exempt a certain amount of $ in the bank, but your A/R won't be yours anymore.

[frogger]

business man is this a personal services business that requires you or your expertise? Or could the trustee easily take over and run the business or sell it to a competitor?

Learned that too.......

I was told that the trustee will try to sell my business. If the trustee tries to take it over and run it, they can't without the expertise. It could be offered for sale to a competitor, but all they will have will be a worthless shell of a business.

Hopefully, ours will be abandoned. That's what I'm working towards.

[businessman]

business man is this a personal services business that requires you or your expertise? Or could the trustee easily take over and run the business or sell it to a competitor?

It's a service business, a gaming center with 60 gaming PCs and 34 xbox 360s, no retail. It definitely takes some expertise to run. The PCs are leased from a business associate whom I owe ~$35k through a written contract. The payments are current. The market value of the PCs is maybe $30k, and we also have ~34 LCD tvs, all paid for and worth about $7k.

Thing is, I need my livelihood or else there's no point filing...unless a Chapter 13 would suit us better and protect our assets?

[businessman]

business man is this a personal services business that requires you or your expertise? Or could the trustee easily take over and run the business or sell it to a competitor?

It's a service business, a gaming center with 60 gaming PCs and 34 xbox 360s, no retail. It definitely takes some expertise to run. The PCs are leased from a business associate whom I owe ~$35k through a written contract. The payments are current. The market value of the PCs is maybe $30k, and we also have ~34 LCD tvs, all paid for and worth about $7k.

Thing is, I need my livelihood or else there's no point filing...unless a Chapter 13 would suit us better and protect our assets?

[frogger]

The PCs are leased from a business associate whom I owe ~$35k through a written contract.

When was the written contract done, and has the contract been recorded and perfected?

[businessman]

When was the written contract done, and has the contract been recorded and perfected?

It was done back in September '09, and no, it hasn't been recorded. It's just a written contract between friends. This is someone I definitely plan on paying back in full, even if it takes me a long time.

I'm wondering if there's something that can be done to make the contract valid for the court in that if I still owe close to 100% of the value of the assets, then they may still be exempt?

[StartingOver08]

Make sure to check with your attorney, but the payments to your business partner, even with a contract, fall under 'insider payments'.

You are allowed to make voluntary payments AFTER your discharge. I don't know if this means you would need to file a CH 13 to keep paying your partner, but in a Ch 7 payments to family, friends and business partners are considered insider payments. Please address this specific question with your attorney before you file.

[Widdle]

It was done back in September '09, and no, it hasn't been recorded. It's just a written contract between friends. This is someone I definitely plan on paying back in full, even if it takes me a long time.

I'm wondering if there's something that can be done to make the contract valid for the court in that if I still owe close to 100% of the value of the assets, then they may still be exempt?

Does anyone know if a UCC Filing would be beneficial in this case...in order to show the lien as being attached to the "goods"?

Here, in Florida, you can access the UCC filings for our state and review what others have attached.

http://www.floridaucc.com/UCCWEB/

[frogger]

It was done back in September '09, and no, it hasn't been recorded. It's just a written contract between friends. This is someone I definitely plan on paying back in full, even if it takes me a long time.

I'm wondering if there's something that can be done to make the contract valid for the court in that if I still owe close to 100% of the value of the assets, then they may still be exempt?

You have a problem here. The bk trustee is going to most likely throw this contract out because it has not been perfected. For a lien to be perfected, it must be recorded within 10 days of being signed.

As to making it valid now? There is no way.

If you pay it off now and try to re-do it to correct the problem, then you have a preferred payment.

(Don't ask me how I know this stuff. You're not the only one that has made mistakes.....)