Personal Chapter 7 Bankruptcy vs. Debt repayment plan after small business closes?

[ScaredGuy]

Hi guys, I've posted a number of times on here and users despritfreya and justbroke have been awesome with their advice. I've been doing everything I can to try to sell my small business which is a single member LLC, but unfortunately the most promising buyers have backed out and the business is on the brink of financial insolvency. After consulting with many attorneys and these forums, the most likely course of action is that we will privately liquidate the business then potentially file a personal Chapter 7 bankruptcy.

However, if I can avoid personal bankruptcy I'd really like to avoid it. Right now the business has about $65,000 in personally guaranteed business debts.

On one hand it sounds good to wipe out that $65,000 in personally guaranteed business debt plus another $45,000 in personal debt with a Chapter 7 bankruptcy. On the other hand, if I do a Chapter 7 bankruptcy I will likely want to list all of the business customers who have outstanding prepaid deposits, and there are many due to some delayed products, which means all of them will get my social security number and a notification about my bankruptcy. Also, I do have some assets which could delay the Chapter 7 case by turning it into an "asset case" which concerns me if I happen to get an aggressive trustee.

Yet if I do *not* file a Chapter 7 bankruptcy, that leaves a crack in the door open for a business customer or creditor to come after me personally at some point down the road. The customers are probably less likely to sue, but there are a couple of creditors who the business borrowed from only in the name of the business where $45,000+ is still owed.

What I'm trying to figure out is: is wiping out $110,000 in debt worth all of the stress and potential online humiliation? Or should I simply liquidate the business then negotiate payment plans with business creditors who have a personal guarantee? Paying down $65,000 in personally guaranteed business debts would take me at least 2 to 3 years.

Thank you for any thoughts on this.

[despritfreya]

My opinion. . . you can try to settle and you may be successful with a few creditors. It only takes one to break the camel's back. Filing bk gives you finality.

As to your perception of "online humiliation" (whatever that is), with all due respect, please just get over it. Thousands of people file bk every day. I would imagine that 99.99% survived the ordeal.

Des.

[ScaredGuy]

despritfreya thank you for your thoughts on the matter, I believe you are correct. However, one factor in the potential Chapter 7 bankruptcy that I'm wrestling with is whether or not I should list all of the business customers in the bankruptcy. Unfortunately, several products that we offered were significantly delayed beyond what was anticipated, so there are something like 1,000 customers with prepaid deposits for products still forthcoming. 90% of these customers have less than $500 in prepaid deposits, only 30 or 40 customers have more than $1,000 in prepaid deposits. I've spoken to 5 different bankruptcy attorneys and they seem to have differing views on this: some say that since the customers did business with the LLC, it is unnecessary to list them in my personal Chapter 7 bankruptcy. Other attorneys say that to play it safe, I should list the customers as creditors in the bankruptcy. However, I am concerned that listing 1,000 customers in my personal Chapter 7 bankruptcy will complicate the case and possibly delay the discharge.

If I do *not* include the business customers in my personal Chapter 7 bankruptcy, could future lawsuits simply be dismissed by stating that those customers did business with the LLC and not me directly? This is indeed the case, the LLC has existed since 2012.

Thank you for any thoughts on this matter.

My opinion. . . you can try to settle and you may be successful with a few creditors. It only takes one to break the camel's back. Filing bk gives you finality.

As to your perception of "online humiliation" (whatever that is), with all due respect, please just get over it. Thousands of people file bk every day. I would imagine that 99.99% survived the ordeal.

Des.

[despritfreya]

1. For my clients I would suggest playing it safe by listing all for "info only". If the client took my suggestion, the cost of the bk would be adjusted to compensate for the additional time in drafting due to the number of potential creditors.

2. If your case ends up as a "no asset" case, omitted potential creditors would be subject to the discharge.

3. In an asset case, omitted potential creditors would not be subject to the Discharge and could go after you. Could you seek to dismiss a subsequently filed lawsuit arguing that the cause of action is against the entity? "Yes". Would you be successful? No way to know until it happens.

Des.

[ScaredGuy]

despritfreya thanks for this, one more question: if all of my assets are covered by bankruptcy exemptions, would it be considered an asset case? Or does an asset case only apply when you have assets that are not protected by bankruptcy exemptions?

1. For my clients I would suggest playing it safe by listing all for "info only". If the client took my suggestion, the cost of the bk would be adjusted to compensate for the additional time in drafting due to the number of potential creditors.

2. If your case ends up as a "no asset" case, omitted potential creditors would be subject to the discharge.

3. In an asset case, omitted potential creditors would not be subject to the Discharge and could go after you. Could you seek to dismiss a subsequently filed lawsuit arguing that the cause of action is against the entity? "Yes". Would you be successful? No way to know until it happens.

Des.

[despritfreya]

despritfreya if all of my assets are covered by bankruptcy exemptions, would it be considered an asset case? Or does an asset case only apply when you have assets that are not protected by bankruptcy exemptions?

In most, if not all, jurisdictions the initial notice sent to creditors in a Chapter 7 case states that the case is a "no asset case" and that the filing of a Proof of Claim is not required. The notice will also state that if the Trustee determines that there are assets another notice will be sent regarding the filing of a claim.

If all assets are exempt there would be nothing for the trustee to distribute to creditors. As a result the case will remain a no asset case and the second notice will not be sent to creditors.

Something I did not think of until now:

Google 11 USC 523(a)(3). Specifically review (a)(3)(B) of that section as it relates to a claim that could be found non-dischargeable under (a)(2), (a)(4) or (a)(6).

The problem you could face is that by not listing potential creditors who might assert some sort of fraud, misrepresentation, breach of fiduciary duty etc., even in a no asset case, the claim may not have been discharged. The safe road is to list everyone.

Des.