SBA loan and Collateral-Anyone???

[flowergirl]

I am new to the forum & filed Ch 7. I own a small business which a SBA loan was taken along with massive credit card debt. Long story short, after 5 yrs of 50hr+ work weeks with no pay Ch 7 was my only option. Here is my question-I have received my discharge & am awaiting closing. Although I was able to stay in business, the bank that my SBA loan was thru is now harassing me again wanting to come and get their collateral. This is news to me, as I thought that if they did not dispute or send in a claim that once I was discharged I was in the clear. Does anyone know anything about this type of situation? The business assets have pretty much been eliminated as we tried to sell alot of stuff to pay the bills, there is minimal "stuff", none of which I would think would be worth their time to retrieve and what if I just don't give them access to my building? Please help.....

[SinkingFast]

I took your question off that old thread and created a new thread here, Flower.

You're more likely to get responses to your situation in the Gen BK Section than on an old thread in Credit Rebuilding.

[lrprn]

A couple of questions... Is your Ch 7 case discharged AND closed? Was the SBA loan listed on your creditor list and were they notified about your bankruptcy? Did you personally guarantee the SBA loan?

[DeadManCrawling]

I also own a business, which does not have any real debt or sba loans.

I have, however, looked into this.

I am afraid you may be in very deep water here. A business cannot declare chapter 7, so I am assuming you discharged YOUR personal obligation to this debt. Also, I am assuming the business is incorporated in some fashion, or it likely would have been covered in your CH7.

The business, unfortunately, is NOT off the hook. This is the flip side of the flexibility that comes with being a business owner.

There are a couple ways to handle this, but no matter what I say, or what you discover on other posts or sites, you NEED a lawyer for this one.

You could:

Declare Chapter 11 for the business. Very costly and almost impossible for small businesses.

Chapter 13. Much like it is for individuals.

Dissolve the business according to state law and reincorporate. This is a VERY complex process. In essence, YOU become the trustee, the representative of the CREDITORS, sell any assets and pay whatever bills you can. THEN, inform all creditors that the business is closed. Ridiculous? Maybe not. As long as fair market value is obtained, you continue to be in command of the ship, pay the appropriate amounts to the creditors (not the whole amount owed by far, usually), close the business and then re-open.

The reason I bring up this last is:

No BK court involvement.

The creditors would have to sue oyu (and win) in civil court to prove you acted in poor faith as a trustee.

NO CUSTOMERS WOULD HAVE TO KNOW.

You could re-incorporate in weeks, with all vendors and customers never knowing anything had happened.

The creditors would receive a fair compensation, given the situation.


This scenario depends entirely on you being able to be: honest and forthright.
Having the money to repurchase your own company assets, knowing that the money will go to the creditors but preserve your business.



It is a very complex subject. I am dealing with it also.

Feel free to priv message me if you wish, or ask more here.

No way in hell can we cover all the bases on this, even if we had 50 years to do so.

best wishes,

-dmc

[HHM]

DeadMan has a point...

First, w/o more info about the nature of the business, it would be difficult to give any concrete advice...but in general, secured loans are not discharged in BK the same way that unsecured loans are discharged. The underlying collateral of the secured loan is ALWAYS on the hook for the secured loan. Which is why the bank is calling to get collateral. Unless the collateral was inventory, odds are you were probably in violation of the SBA loan agreement by selling the assets which could "probably" null the discharge of your personal obligation to the loan.

[oretnom1]

Deadman, can you elaborate on what you mean when you say "a business cannot declare Chapter 7"? My business declared Chapter 7. I'm puzzled. Thx!

[HHM]

Deadman, can you elaborate on what you mean when you say "a business cannot declare Chapter 7"? My business declared Chapter 7. I'm puzzled. Thx!

Business don't receive a discharge.
Section 727(a) The Court shall grant the debtor a discharge, unless...
the debtor is not an individual (and you guessed it, in this context, individual means "natural person"). Corporate entities can "declare" chapter 7, but they don't receive a discharge. We are talking about Corporate Legal Entities...i.e. corporations, limited liability companies...a person operating as a sole proprietor or attempting to discharge their individual liability for business debts can file chapter 7 and receive a discharge. However, corporate entities do not receive a discharge.

[oretnom1]

Right, we were a corporation and declared Chap. 7. I understand however that there is no discharge. Thx!

[DeadManCrawling]

Well, technically, you can declare a chapter 7, but there's not much point in doing so. You can liquidate assets on your own, with you as trustee, and pay the bills, or let a court handle it. There are benfits to both.

The main point is, the business does not receive a discharge. Therefore, if you want to stay in business, you will have to start a new corporation or figure out another avenue. If you continue to operate, creditors continue to have a right to your assets, income, inventory, as businesses do not receive a discharge.

-dmc

[oretnom1]

Right, in my case, I'm DONE (TOAST is actually a better word for it!) No desire to continue operating. Thx!

[flowergirl]

Loan Collateral

I appreciate the replies, let me clarify a few things. I was a sole prop. with mostly consumer debt. The only other debt was the 125,000 SBA loan. I had a lawyer through the whole process and I was discharged and the SBA loan was included in this. As the type of business I am in the only collateral is "equipment". I own a florist, so I do not keep a regular inventory nor do I have a large shop with much equipment. There was never an actual listing of what is considered collateral and what is not. My business during the Ch 7 had to have an evaluation done and it was so little the trustee exempted it which is why I was able to stay in business. Nothing was ever sold that I was not in the clear to sell, I have never gotten rid of any "equipment". I guess the question is this, if they are entitled to any collateral do they not have to have some documentation as to what they are after? Someone from the bank was supposed to keep track or record of collateral right? I am alone at my business most days, and pregnant to boot- and the guy they keep sending to harass me is a young pompous 6"4' threatening guy. I want to avoid not only an unsafe situation, but do not want some man coming in taking advantage of the situation and clearing me out of everything. Last thing my lawyer said was to tell him to go get a court order, to ensure what he can & can't take. If I never hear from him again is there a SOL?

[HHM]

I guess the question is this, if they are entitled to any collateral do they not have to have some documentation as to what they are after? Someone from the bank was supposed to keep track or record of collateral right?

Not necessarily...although it is preferable, it is not legally required to have the collateral specified in an SBA loan agreement. A bank can take a general security interest in all business assets. But, they would need a court order to actually take anything.

[flowergirl]

Would a court order list what items they are entitled to? I have some personal items in my shop that I brought with me, they can not take personal items that I listed as personal in the bankruptcy right? And how long after my discharge do they have to come and get stuff? Like if they don't show up they can't come after me again a year down the road can they?

[flowergirl]

It has been almost a month since the bank called & I told them to go get a court order....does ANYONE know if there is a statute of limitations for collateral? How long do they have to come and get it court order or not, so I know when I am finally free? I am afraid to keep purchasing new inventory knowing they might be able to come and take everything.....ANY input would be so appreciated!!

[flowergirl]

Please, anyone know?

I can't seem to find the answer so if anyone knows, please respond... The bank still has not come after their collateral. I was discharged on 5/24/07. How long before I can get rid of it, if I don't need it. If they never come for it, how long before I am free and clear to do with it what I want?