Business Debt Stressing Me Out, Help

[bkincv]

Hello forum. This is to any small business owners out there in debt. My wife and I declared a personal Chapter 13 late last year and are on our 5th month with the trustee officially approving the plan and the lien strip last month. We pay $1550 to cover a back taxes from 2008, a 2nd, tons of credit card and other unsecured debt along with a host of other debt totaling a whopping $256,550. Also, my business revenue has gone down with clients dropping the service I provide (dry cleaning pickup and delivery from homes) or they just can't afford the service anymore which I totally understand esp. in this bad economy. The problem is now is I've accumulated a little over 12k in back debts over the past few years for cleaning services from my dry cleaner. He's been pretty lenient about not collecting the debt the past few years (thank goodness) but lately HIS supplier of dry cleaning supplies has put the screws on HIM so now he's getting really aggressive calling me constantly for payment. I told him I can't use credit cards or get any loans from the bank anymore because of the bk. I told him I had to give my car back to the bank too. I've tried everything to get caught up but just cant do it. He told me today: "Well you better figure out something or I will hold your clothes for your customers!" I told him in almost a yelling match over the phone I've tried everything I could to get him the money even tapping into my own retirement which is nothing now. I'd try to get an SBA "Arc" loan for struggling small businesses but with the bk it will probably get turned down. I can't sell the car since it's covered in the 13. I don't have any assets to sell for cash either. I might have to just give him the business and convert to a 7 but it will still leave me having to pay the mortgage, back taxes (in the 13), payment on 2 personal vehicles and 1 work van will need to be negotiated with the banks if I convert AND I'll lose the lien strip. I told my attorney I might have to do this but she discouraged doing so at all costs unless it's really a dire situation which it is now. Is there any advice any business owners or anyone can give (other than how I even got in this situation, don't need to hear that right now). Thanks for the support people. It has been a rough time for my wife and I the past year financially and I'm stressing out. This forum has at least helped me keep my sanity as I work through this. Appreciate all of you and your advice.

[RunningMan]

Did you name the dry cleaner as a creditor in your bankruptcy? Will he take payments for the back debt to get caught up? Can you afford to make payments to him on top of the BK payment?

You could convert to a chapter 7, walk from the house, name the dry cleaner as a creditor in the BK, and arrange a payment plan with the IRS. If most of your debt is business related you will qualify for a 7 even if you are above the means test. Keep your customers and find another dry cleaner and pay them COD when you pick up the clothes. Rent for a while until you are back on your feet and then buy another house.

[bkincv]

Did you name the dry cleaner as a creditor in your bankruptcy? Will he take payments for the back debt to get caught up? Can you afford to make payments to him on top of the BK payment?

You could convert to a chapter 7, walk from the house, name the dry cleaner as a creditor in the BK, and arrange a payment plan with the IRS. If most of your debt is business related you will qualify for a 7 even if you are above the means test. Keep your customers and find another dry cleaner and pay them COD when you pick up the clothes. Rent for a while until you are back on your feet and then buy another house.

Thanks for the reply. Cleaner not named in the bk. Most of the debt was actually personal. Moving not an option since my 2 kids go to the local school and we would lose the lien strip on the 2nd. I've offered to make payment on the back debt but he told me he needs most of the money now. Am trying my hardest to get the business revenue above the cost of the trustee payment and mortgage (which was modified) but that won't be overnight. We've technically been partners since 2003 and he's never been this persistent on getting payment until HIS supplier came down on him to collect, thus transferring the pressure to me to pay. I would love to pay him, but just can't get a loan, use credit cards, borrow, tap from retirement since I did already. I could convert to a 7 but then I still would have to pay back taxes of $14,338, negotiate the 3 car payment (2 personal and 1 business van) and lose the lien strip of $125k. I mean I could negotiate with the IRS for a Offer in Compromise and give back the business van and lose the lien strip but try to get one later on my attorney said. If there was any way I could borrow 12k to pay my cleaner back I would do it today but told him I just can't make money appear out of thin air. Man, I need to win the lottery tonight! Haha.

[RunningMan]

What do you mean by "technically your partner"? If he is your equal partner in the business, he shares the $12,000 debt with you. Is the business a corporation, LLC, or partnership? Is the there a buy/sell agreement for the corporation or partnership agreement that you signed?

Your biggest problem is that he is your main supplier and he can shut down your business. Can you walk with the customer base and find another cleaner that won't hold your customer's clothes hostage for payment? If you can't pay him the $12,000 and he will not release your customer's clothes until you do, you need to find other options or you will be out of business anyways with no income at all (and probably get sued by your customers who don't get their clothes back). You need to keep income coming in. The house, IRS, car payments, and all that are secondary and don't matter if you have no money to pay them.

Moving is an option. It is just a house. You can rent another house near the school or move the kids to a different school. The lien strip doesn't matter if you walk from the house. You have to take the emotion out of the decision. I made a lot of bad decisions with my business. I held on to employees when I should have downsized. I did not manage the day to day operations of the business because I was out in the field all day trying to earn enough money to pay everyone but myself. At some point it becomes not worth it anymore and you have to let things go that are holding you down. I was not very good at that, and I dug myself into a deep hole that is going to take me five years to dig out of. You have to look at all your options including walking from the house.

[bkincv]

Business is an LLC and he's not really a "partner", but one I've been doing business with since 2003. Finding another cleaner is something I've explored and I've done it before. He's made the threat of "not going to give me back the clothes" but usually they are idle threats. I told him, "If you do that, you'll lose ALL the customers and the money!". I know he's just at the point where his supply vendors want their money as well but I asked him how his walk in business was and he said it was "doing real good, about $20-25k a month" so I don't see why he's on my case for payment. Besides I know I'm not the only one that owes him a significant sum of monies since other owners use his services. He has a history of lying to me in the past and not sure if he's telling the truth sometimes. I will talk to him about it tomorrow and see if we can't come up with another viable solution. I would get a loan if I could but BK prevents me from doing that. I would try to get the loan under my LLC but they look at personal credit and I'm done there. Can't use credit cards of course. I told him, "YOU have a way better shot at getting a loan or credit card more than me!" If HE can obtain a loan or credit I will to arrange some payment plan with him, that's about the only thing I can think of at this point. Heck, if push comes to shove, I told him I'd practically GIVE him the business (worth probably more than I owe him) and try to make up the monies I have to pay to the trustee and the mortgage by getting a job or starting another business and convert to Chapter 7. I'll think of something. Thanks for you advice, I appreciate it.

[timetofile]

From one dry cleaner to another, sorry to hear this is happening. What part of CA are you in. File him in your BK. You cant pay what you dont have. I'm in VA and cleaners have taken a huge drop in this economy all across the country. Thank God I'm one of the one price guys, things are really looking up on this end. I used to be in CA and know friends in NOCAL that would probably do your clothes for cheaper than he is doing them. What's he charging you per pc? I know what you mean about getting any kind of loans for working capital, once the credit gets clobbered, there is now way We have been struggling for 6 yrs since we left CA and are finally seeing light at the end of the tunnel.

[bkincv]

Thanks for the reply timetofile. I'm already a few months in the 13 so I don't think I can file him into the plan. I really didn't want to either since the payment would have been higher. I just plan on paying him back any extra monies over the year to get close to being caught up with the guy. I spoke to him several times explaining my situation and thank goodness he's not playing hardball or suing me for the balance. I mean, I have made the guy over half a million dollars over the course of our partnership together. As for the situation here in CA, I live in the South San Diego County. Not a one price cleaner. We're very competitive with the walk-in's since I'm not a storefront, but a pick up and delivery service to residential customers. I figure if the financial hole gets deeper I'll just sign the business over to him and call it even. I'm working on another business anyway and if it goes the way I think I might be able to hand over the business to him by the end of the year. Thanks everyone for your replies and support!

[timetofile]

We used to live in North County San Diego, we sure miss it Best of luck and if you know anyone in the market and wanting to move to Va, let me know ;) but I'm sure no one would want to leave San Diego, we're working as hard as we can to get back there Good luck!

[bkincv]

Hello everyone. Just an update on this situation. I've spoken to 3 local dry cleaners about buying my business and offering it for $40k and have 2 serious buyers! I then would pay my cleaner the back monies I owe him and the remainder would enable me to build the other business and pay the trustee and mortgage for about 8 months I calculated. I'm crossing my fingers this goes through since it will give me a lot of breathing room and less stress. Not to mention get my cleaner off MY back for the back monies I owe so he'll be happy. My latest venture for those who are curious is publishing a kids and family magazine for businesses in my area. Revenue would be generated from the ads they buy in the magazine. Reasonable rates, full color and nice profit potential. No employees or store front needed. I'm really excited and had close friends and business owners that have seen it said it should be a home run and some of the business owners want to get INTO the magazine that will be published in May! I'm really excited and feel very much relived but have to work out the details for selling my business. Anyway, that's the latest. Thanks for everyone's input that replied.

[BKOnce]

Sadly with this bad economy.. people stop spending on "dry-clean" and worry more about food on their tables and rent$ to pay...

[bkincv]

Sadly with this bad economy.. people stop spending on "dry-clean" and worry more about food on their tables and rent$ to pay...

Yeah, that's true, but they still need their clothes dry cleaned since you can't clean a suit or some fabrics in a washing machine and you wouldn't want to. People just don't clean as much or they hold an item until it's really filthy. I totally understand esp. in this economy. But people still need to dress for success for work, interviewing, meeting clients, etc to earn the money to pay their rent or eat. I have doctors, lawyers, real estate agents and business owners that have some $, they don't have time. In this bad economy the business still grossed over $100,000 a year. And that's a down year......

[RunningMan]

Some of us still need to get our clothes dry cleaned even when money is tight. I did buy a couple of no iron shirts which are great for travelling as they don't get as wrinkled, but I usually dry clean those too. I think selling advertising is going to be very difficult in this economy. But San Diego is a large community you should be able to get some business and when the economy recovers it will be that much easier.