Too much debt to file??

[Overmylimit]

I wasn't sure which forum to post this in so I put it here also. My story is long but I will try to make it brief. I own a commercial cleaning business in California. I did a buyout of another company in 2007 and thats when the trouble started. I met with a lawyer on Thursday and he said I had too much debt to file. Basically here is my snapshot right now. My home a 1st and 2nd total about 795k 2 rental properties mortgages on both about 140k total (they are out of state). 450k in unsecured business debt. I own all of my cars and business equipment outright. He told me I had too much to file, my business is a sole propreitorship. He was calculating on the computer and said I couldn't make more than 66k per year between me and my wife? I kind of didn't understand that was he saying if my business grossed more than that or my actual pay that I take from the business. I never take a check from the business but it does pay most of my bills. So he said if he were me he would dump the business and then go back and file chp 7 to get rid of the unsecured, he also said if I didn't have the ton of unsecured debt he could strip off the 2nd mortgage since the values have plummeted. Any advice would be helpful. I have another appointment with another lawyer but they are taking appointments in early December.....a long way off. Thanks for any help. Mike

[JRScott]

First off see some more lawyers, you need one willing to fight for you.

He is just using median income probably in your area.

While your debt is high it is not to high to discharge. However you will have to withstand the US Trustee most likely due to high debt and thus need a lawyer willing to fight for you.

[Overmylimit]

Thanks for the reply, I had a another question though how come some people file and have a discharge the same year like at the bottom of your post but others take years?

[AngelinaCat]

Thanks for the reply, I had a another question though how come some people file and have a discharge the same year like at the bottom of your post but others take years?

Hi OVL: Welcome to the Forum. While I cannot answer your questions regarding the business, I can answer this one.

Most people you see celebrating Discharge Orders within the same year, or relatively short time-frame, are Ch7 cases. Those usually wind up after the 60th day, day 60 being the last day for Creditors to Object after the 341 meeting is held. The 341 is formally titled: MEETING OF CREDITORS. Creditors rarely, if ever, show up at these, although it is known to happen.

The cases that take longer to Discharge are Asset CH7 cases and CH13 cases. Asset 7 cases--as 'Hub and I are, depend on the paperwork, circumstances, District and trustee. We actually ARE Discharged; but our case will not close until all the buy-back payments are in, and he finishes the administrative paperwork.

C13 cases usually run about 36 months, or three years. Some go the full 5 years. It depends on the situation and your District and trustee.

I hope this helps. Good luck.

[Dollar Bill]

Hmmm....I thought you could be a good candidate for C7 due to the hugh business debt. Typically when you have more than 51% of the debt from business, you do not have to qualify for the means test. Meaning you and your wife wil have to make under 63k or so a year. You don't have to worry about that!

Your huse is 795k and total business expenses are 450 and two rentals total 590k. Are you sure there isn't more biz debt you aren't thinking of? You need 205k mor eof biz debt to qualify. Business equipment such as tucks cars etc financed under the business. Cell phones....find everything you can and add it in.

Is your second mortgage worth anything?

If it has no value, yu may be able to file a C13 and have the lawyer do a cram down to getrid of the second. How long have you had the second mortgage?

If you got rid of the second mortgage, you would qualify for a C7. Maybe convert over.

Someone else may know better.

Just a thought.

[HHM]

The lawyer is correct in that you do not qualify for a chapter 13 because you have too much unsecured debt. (and for that analysis, it does not matter if the debt is business or consumer) and this lawyer probably sees that you make too much money (which makes you a poor candidate for chapter 7), but at the same time, you do not qualify for a chapter 13 because you have too much unsecured debt.

Since you are a sole proprietorship, the business net income is "your" income. There is no separation between you and your business.

Basically, you have one question you need to answer. Do you want to continue to operate this business?

If no...then you should consider a chapter 7 and liquidate the business (i.e. shut down and sell everything).
If yes...then you will probably need to file a chapter 11 which is significantly more expensive and you need to go to a true, corporate bankruptcy law firm.

A side note to clarify an inaccurate statement:

C13 cases usually run about 36 months, or three years. Some go the full 5 years. It depends on the situation and your District and trustee

The opposite is true and has nothing to do with the district or trustee. All chapter 13 cases are required to run for 5 years, UNLESS the debtor earns less than the median income, or the debtor pays 100% in less time.

[BROKENN]

HHM, good concise description!
OL, welcome. And I have a very similar scene. Mostly biz debt and very high. We needed a lawyer because it was complex, and as DB said, find one that sticks up for you and has done these before.

And yes, we had to give up the biz. Atty explained this to us, we had to shut down. Atty also said all would go well whether we hit means or not. But we did hit means because after all the biz expenses, cell, insurance etc.. our income was low.

Deciding on your biz is... well, very hard. I understand. You can start over after a C7 with another or independent.
If you want to keep it, be sure you figure your expenses/income/debt payoffs and it looks sane IMHO. We scrapped for years trying to make it go as we fell more and more in debt. I wish I had filed earlier

[Overmylimit]

HHM sorry I wasn't sure which forum to post in since there was no clear answer about 7 or 13 so I posted in both. Thanks for the advice I am not sure which way to go with this. Just to clarify on the #'s on the two rental properties I owe 140k for both together. My home here in Stockton appraised for 895k a year and a half ago now it worth 450k yuck!! So they told me if I hadn't gone over the limit I could have the 2nd stripped away. I saw in one of the threads that there was no limits on chp 7?? I also read somewhere that if you are married you can double the limits, so instead of 330k in unsecured it would be double for us both (this # is probably not right I am going off memory which isn't always the best) so when I went to the consultation I figured we were in the ball park. Also my income is the business income, but if you take the gross its a lot but I don't get to keep anywhere near those amounts. Thanks for all the help

[HHM]

1. Correct, there are no debt limits on a chapter 7, but you cannot lien strip in a 7.

2. I am not sure a married couple can double the debt limits in a chapter 13. Honestly, that is an issue that doesn't come-up too often. Some simple web searches haven't yielded any obvious answer. Hopefully someone can chime in with a source one way or the other. The unsecured limit as of April 2007 is $336,900.

3. But in many states, a married couple can double asset exemption amounts, but that is an issue of exemption and state law varies.

4. Your income is not the "gross" income of the business, it would be the net income (i.e. Gross Revenue minus business expenses), what I meant to imply is that whether you actually take money out of the business is not the issue, the net income will be attributable to your as personal income regardless of whether you cut yourself a check.

Go see a few more lawyers, try to find some that are more business oriented, and ask directly if a married couple can double the debt limits in a chapter 13. However, being in a chapter 13 may or may not be in your best interests, if your business is not doing that well, it begs the question of whether you can adequately fund a 13.

[Overmylimit]

Ok maybe thats where I got lost when I had my appointment. So if my actual income (net) was below the 63k for the year I would be able to file for chp 7 with no limitation on the unsecured debt. If I were to take all of the business expenses and deduct them away from the gross I think I could show being under that threshold. Thanks this is reallly helping me a lot. As all of you know I have been wrestling with this coming on for months so needless to say a lot of stress and lack of sleep.

[HHM]

Correct, if the business net income (plus any income your wife has) is below the median, you are conceivably a candidate for a chapter 7 (meaning, at least you can probably qualify).

Here is the catch, if all your business and personal assets--except for your real estate--are owned outright and if there is not enough exemptions to exempt the value of those assets, you will either need to sell them or pay the trustee the equivalent value of the non-exempt portion. Also, it might be worth it to file a chapter 13 to get the 2nd mortgage striped off. How much is your 2nd?

But still, the main decision you need to make is whether you want to keep operating this business.

[Overmylimit]

My 2nd is 175k and as far as business assets I can sell some to pay down a little but the rest I need to operate. The lawyer I talked with said all of my vehicles were safe but the total of 940k in total mortgages (rental and my home) plus the 450k unsecured I was over the limit. But I could show that I make under the threshold.

[No Gravy]

My 2nd is 175k and as far as business assets I can sell some to pay down a little but the rest I need to operate. The lawyer I talked with said all of my vehicles were safe but the total of 940k in total mortgages (rental and my home) plus the 450k unsecured I was over the limit. But I could show that I make under the threshold.

With that much at stake, definitely meet with *several* attorneys. See if you can get some referrals from someone local.

Welcome to the forums, and good luck with this!

[Overmylimit]

I agree about meeting with several lawyers first but the tough part is knowing which one will do the best job.

[No Gravy]

I agree about meeting with several lawyers first but the tough part is knowing which one will do the best job.

Well, it's kind of like looking for a new doctor. Do as much research as you can and know your questions going in, see if you can get a referral to speak with past clients, and then you trust your gut. With me, it's usually the one who:

• "feels right",

• who knew the answers to my questions and could cite experience with past cases (rather than having to get back to me in a day or two...giving them time to look up answers),

• gave direct and specific answers to general questions,

• has been practicing for a reasonable amount of time,

• and the one who seemed to have his (or her) OWN act together.

You'll know