Chapter 7 Business and Chapter 7 Personal --Help !!!

[frightened]

My wife and I fear we are facing inevitable Chapter 7 due to small business losses and accumulated personal debt related to our business. We had an initial visit to a BK attorney one month ago to discuss our situation. The attorney told us our situation would not even qualify for Chapter 13.Chapter 7 was his only recommendation.

We have been fighting the decision to file for some time.

Needless to say, it is a heartbreaking and frightening proposition. We discussed filing both a business Chapter 7 and personal Chapter 7. We have secured debt for our business (business equipment and inventory). Our debt obligations for our business is approx 200,000. Our business assets our approx 40,000. Our only other secured debt is our house. We currently have approx 40,OOO equity in our house and owe $140,000. We have two vehicles which are paid off and worth a total of approx $7500 max.

I have several questions which I would appreciate input on:

1) Once we file for Chapter 7, will we have to turn over our business to a trustee immediately, or can we still work to help make ends meet until a 341 meeting or a ruling is issued?

2) Do both my wife and I have to be present at the 341?

3) I am looking for alternative work out of our area right now. If I accept a position after we file which pays more than what the current means test allows, will it potentially disqualify us?

4) If I do find work outside our area, are there any additional meetings I would have to be present for aside the 341?

5) And finally a probably really dumb question :What criteria would be used to determine if we are a non-asset Chapter 7 vs Chapter 7 with assets?

Thank you all for any help. This is all new and very frightening to us.

[HHM]

I don't have time to answer all the quetsions right now, but let me take a few.

1. I will try to remember to get back to you on this one. Short answer, yes, but with a big "but"

2. If both you and your wife file BK, yes

3. Nope

4. Generally, no

5. Exemptions. Generally, the business assets won't be exempt, so you will have an asset BK-7

I will try to come back and comment on whether you even need to file chapter 7 for the business, in most cases, there is no need; or perhaps someone else will comment.

[StartingOver08]

Generally when you have a small business you can just file the Ch 7 personally to do away with your personal liability on the business debt and then just close the business.

However, that depends upon how the business has been set up, partnership, LLC or sole-prop. Some people prefer to actually liquidate the business first, then file Ch 7 personally. Moran Law has a good analysis of going Ch 7 with your business or liquidating first, look at this link:

http://www.moranlaw.net/failing-startup.htm

Also check out this article on struggling businesses and BK because there are some pitfalls to be aware of when deciding to file or not:

First, is the business a corporation, a partnership, or a proprietorship?
Corporations, limited liability companies and partnerships are legal entities separate from their shareholders or partners. They can file Chapter 7 or Chapter 11 bankruptcy in their own right.
Bombshell for partnerships in Chapter 7 Go to link in article below

Proprietorships are just an extension of the owner: they can't file bankruptcy alone: the proprietor must file bankruptcy, since the assets and the liabilities of the business are really just one form of assets of the proprietor. The individual owner may file Chapter 7, Chapter 11 or Chapter 13 (if the debt limits are met). See Chapter 13 eligibility standards.
Should the business be reorganized or liquidated?
To answer this question, you have to know what has caused the problems the business now faces and what are the prospects for change: Reorganization can't create a market; increase gross revenue, or make up for a poor fit between the skills available and the skills required to run the business.
Reorganization could free up cash from servicing the old debt to permit current operations; permit rejection of leases or contracts that are no longer advantageous (an expensive facility lease or improvident equipment purchase); or prevent the loss of vital assets or cash to creditor collection actions. In between Chapter 7 liquidation and reorganization, a liquidating Chapter 13 or Chapter 11 could provide a breathing space for the owners to sell the business as a going concern or or its assets in something other than a fire sale.

The resulting proceeds could pay taxes or unpaid salaries; sale of the business could provide ongoing jobs for the work force under new ownership. The bankruptcy could then be converted to Chapter 7 or dismissed if bankruptcy protection is no longer needed. The court will probably condition dismissal of the case on payment to creditors of the sale proceeds.
Possible pitfalls for management Go to link in article below to see

Does management have the resources and desire to engage in the reorganization process?
Bankruptcy reorganization in Chapter 11 requires significant time on the part of the owners and managers to comply with the requirements of the bankruptcy system, interface with counsel, and negotiate with creditors. It is usually expensive as well.
The "bankruptcy bargain" is that, in exchange for the protection of the automatic stay and other bankruptcy protections, the debtor provides full disclosure of its financial condition to creditors and the court, both at the beginning of the case and on a monthly basis thereafter, and operates as a fiduciary for its creditors while the bankruptcy is ongoing. A reorganization can drain an already stressed organization of management's time to participate in bankruptcy proceedings and money since the legal expenses are significant.
Most reorganizations fail, usually for lack of a real plan to solve the problems.

Is the business one that the owners could start up again after a liquidation of the current business?
Businesses that require little capital, have few assets, or are really just extensions of the owner's skills and personality are ones that it may not pay to reorganize. The owners may be better off liquidating the business, in or out of bankruptcy, and starting over in a fresh entity.

This can be a complex issue and requires good professional advice to do correctly. Thoughts on finding a lawyer.
When Chapter 7 is best
A Chapter 7, whether for the individual or a corporation, may be the best choice when
the business has no future,
it has no substantial assets or qualities that cannot be reproduced after bankruptcy, or
the debts are so overwhelming that restructuring them is not feasible.
Individuals can get a discharge of the dischargeable debts and a chance to start over.
Corporations don't get discharges, so a corporation won't get a fresh start in a Chapter 7, the way an individual does. Nonetheless, a Chapter 7 can provide an orderly liquidation under the direction of the trustee and at no expense to the shareholders. Creditors are assured that they will be paid to the extent of the assets available and the priority of their claim. Former management is assured that the assets that are available go (after the expenses of the Chapter 7) to pay taxes for which the individuals may be liable.

More on the liability of "responsible individuals" for the corporation's taxes.

Planning for Chapter 7

When to file a bankruptcy for a corporation
Liquidate in bankruptcy or on your own

(See the link below for answers to those questions)

http://www.moranlaw.net/struggling.htm

[frightened]

Thanks for the quick responses. I have looked at additional posts and have to say this is truly a great forum with great info!!!

I need to mention that our business is an S-corporation in Georgia. We also have accumulated approx 65,000 in personal cc and unsecured cc related loans to keep our business afloat during the past four years. We have taken minimal out for salaries for ourselves during the past 2 years (less than 25,000 total for each of the last two years). We have pretty much zeroed-out our savings and retirement also.

As for our house mortgage, we have 105,000 in primary owed and 35,000 in home equity line owed. I was attempting to refinance to pull remaining equity out so I could pay off some of our debt, but I now believe it is futile and might even be a red flag to attempt to refinance right before filing.

Also, I apologize for the typos in my original post. Must be the stress

[dogbone33]

We filed bk and I have a small business. I am a sole prop and everything was included in the bk. However, I am going to reaffirm a loan I have on a trailer I use for my business, so I will still be running..