The Bank is shutting us down

[kpminn]

My bank has stopped my funding and I am closing my business after 22 years and selling the assets to pay the bank. I will keep the Accounts Receivable and will use them and the additional funds from the sale to pay creditors. They should receive .30 per $$. I will file CH 7 if any of the creditors force the issue. My biggest concerns are:
1. Personal guarantees; one lease, approx $100k, one supplier, $75K and a number of smaller trade accounts in the $1-5 k range. If they are offered a .30/$ settlement outside of CH7 can they come after me personally?

2. I have personal credit cards that I used for business expenses. Can I pay myself the expense reports that I submitted for those expenses? Full or the same as other creditors? I will receive no other $$ from the sale.

3. In a liquidation am I compelled to pay all creditors the same % 0r can I negotiate individually?

4. The business is being purchased and will continue to operate. I have to pay certain expenses prior to the date of sale. ie utilities, phone, etc. Could any of these be considered preferred payments?

Thanks!!

[nerves]

I can answer some of your questions/insight and hopefully others will chime in. We closed a business as well and we are one week from discharge hopefully

1. Is your business a Proprietorship? Ours was and my responses are based on such and our experience.

2. If you are a sole prop - if you settle you will most likely have to pay taxes on the difference between the settlement and amount owed. Ex: You have a $10,000 debt and pay $3000 settlement - you will receive a 1099 for the difference of $7000

3. If you settle, legally I don't think they can come after you for the difference. However, your information my be sold to junk debtors and receive continuous calls from them trying to collect the difference.

4. Personal credit cards - if you are a sole prop - you can probably do as questioned. You can pay yourself. However, you may be questioned on what you did with these funds depending on the time frame of when you pay yourself and when you file.

5. Equally settling - if you settle with some and not others - the preferencial payment issue will most likely come into play depending on the amount and how long you pay some creditors and not others and file bk.

6. You can pay normal business operating expenses. This should not be an issue. We paid ours and it was never questioned.

7. If you have not consulted with a few attorneys - I recommend you do so before you take any action. The above is information is based my personal experience and what I have learned during the bk filing process. You may have some different laws within your state.

8. I don't know your reasons for wanting to settle with the creditors. You have to do what is best for your situation, but remember you may be setting yourself up for some big taxation issues. Between your legal and tax advisor, they should be able to send you down the right path to fit your situation.

Best to you - Nerves

[frogger]

My bank has stopped my funding and I am closing my business after 22 years and selling the assets to pay the bank.

4. The business is being purchased and will continue to operate. I have to pay certain expenses prior to the date of sale. ie utilities, phone, etc. Could any of these be considered preferred payments?

Thanks!!

So which is it? Are you closing the business or selling the business?

[kpminn]

Thanks to both for your response and questions

I am selling the assets of my Sub S corp of which I am the sole owner and will close the business. The assets are being sold to a company that will continue operations under their organization.

I hope to use the proceeds of the sale and the Receivables to settle with the creditors. The bank and the fiduciary debt will be paid first and then the unsecured creditors. I am hoping to do this w/o the Chap 7.

I don't think I will have a taxable event due to the fact that debt forgiveness
for a Sub S corp when insolvent results in a taxable event. My CPA has confirmed this.

I understand the preferential treatment issues but want to avoid the personal CH 7 and could if some creditors are treated differently and paid a higher %....

The reason for wanting to settle with the creditors is to proceed in a commercially responsible manner and avoid the CH7. I do have an atty who is ready to proceed if anything is contested.

I do hope to avoid the personal guarantees and avoid the personal CH7.

Thanks!!

[frogger]

The reason for wanting to settle with the creditors is to proceed in a commercially responsible manner and avoid the CH7. I do have an atty who is ready to proceed if anything is contested.

I do hope to avoid the personal guarantees and avoid the personal CH7.

The commercially responsible manner is to follow the law. One of those things in the law is bankruptcy. If you have done your best, then you have been responsible, and bankruptcy is nothing to be ashamed of.

Bankruptcy was written into law over 200 years ago and is one of the reasons that America has been so successful. If you try to do something and fail, you can get a fresh start!

While your plan may be admirable, I don't see it working. Consult with a competent bk attorney and see what advice you get from them.

[kpminn]

Frogger,
What problems do you see in trying to hold off on the CH7? My primary concern is to see the business continue after the asset sale. If i do file CH7 for the business the creditors would still seek the personal guarantees and force me into a personal CH 7.
I may end up doing both but hope to avoid that.
Thanks

KP

[frogger]

Frogger,
What problems do you see in trying to hold off on the CH7? My primary concern is to see the business continue after the asset sale.

KP

If it is a viable business that can continue, rest assured that the trustee will sell it.

Why are you so concerned about seeing the business continue after you sell it?

[kpminn]

Frogger,
Continuation creates better outcomes for employees and continued business for creditors.
The outcome doesn't change for me except that I might have 6 months of continued employment by the new company during the transition.


Thanks

[frogger]

Continuation creates better outcomes for employees and continued business for creditors.

Thanks

Continued employment for those employees is something that would be a positive thing for the trustee to consider.

[kpminn]

Frogger,
Would you expect the creditors after receiving .30/$ in the sale/liquidation would come after me and the personal guarantees?

A few years ago I asked my atty about signing a personal guarantee, (I had already personally signed some large PG's) He said "If you are already dead it doesn't matter if they shoot you again".

KP

[frogger]

Frogger,
Would you expect the creditors after receiving .30/$ in the sale/liquidation would come after me and the personal guarantees?

KP

Yes. That is why they had you sign the personal guarantee.