Sole proprietor - 7 or 13?

[Chicago]

Moved this to it's own thread:

Question: I'm under the median income for Illinois but since I run a side business (sole proprietor - actor, writer, singer, DJ), would I still qualify for Chapter 7? Or will running a business automatically dump me into a Chapter 13? The only business equipment I'd hate to lose are my guitars but everything else can go as I'm looking to get out of the DJ business anyway.

I know they also look at expenses and income to see if there's money left over and right now there is. I'm trying to get my expenses up since I have no health insurance (pita to get since I have a pre-existing high blood pressure) and no retirement accounts.

In addition to my entertainment business, I also work as a temp to get regular income since well-paying gigs can be few and far between. During that time, I've racked up major credit card bills (AMEX, Citi, AT&T, etc.) trying to get my career off the ground. I rent an apartment with four other guys and my 1992 Toyota Previa is paid off. I have three guitars, a complete PA and light system for my DJ work, and a couple of Mac laptops that I use for that as well. Other than that, the only things I own are bed, dresser, TV, DVD, VCR, stereo, and speakers.

I lived with my parents up until 2004 so paying my bills wasn't a big problem. Then I moved to Chicago that year to get more acting work and the credit card debt started piling up just to meet living expenses on top of business expenses (headshots, classes, demos, etc.). My dad was cool enough to help me out each month with the shortfall but it reached a point back in September 2006 that even asking him for help with my AMEX bill was pointless and I stopped paying that one aside from a few hundred each month.

After that, I stayed current on the rest of my bills and just ignored AMEX's phone calls. Then in March they sent me to collections and I ended up talking to this lady at United Recovery who tried to help me figure out what to do. She was cool but her boss wasn't and finally I realized I had to bite the bullet and look at bankruptcy. To be honest, I was so freaked out after talking to her on a Wednesday night that I just called this law firm I see on TV all the time (Peter Francis Geraci) the next morning and made an appointment for the following day to meet with them.

I ended up retaining them out of fear and have made regular weekly payments in advance of possibly filing a Chapter 13, though now I'm trying to see if I could qualify for a Chapter 7. Looking to meet with other attorneys even though I'll probably lose what I've paid him.

Oh, and I cut up my credit cards the day I met with the attorney and haven't made any major purchases since September 2006. Feels so good to be living on cash only.

Sorry for the long post but I needed to get this out. Aside from the attorney, I've only told my accountant and a good friend of mine about this. Still too scared to tell my parents even though I know I'm going to have to list my dad as a creditor.

Thanks in advance

[lrprn]

Hi Chicago and welcome to BK Forum!

You live in IL and I'm assuming you have no dependents that you are supporting. In Illinois, the median income for a single earner is $42,995 yearly gross income. If your income added up from all sources is less than that, then there's a good chance you can file Ch 7 rather than Ch 13.

However, if your total income for the last six months is over $42,995, then you will need to complete the required Means Test to see how much disposable income you have every month. That's the true deciding factor between Ch 7 and Ch 13 if you earn more than the median income for IL.

Unfortunately it isn't as simple as subtracting your income from your expenses - the Means Test is more like doing your taxes - it's complicated plus there's a great deal of different interpretations between how trustees and judges interpret what are allowable expenses as well. That's why having a lawyer who is very familiar with your bankruptcy district's and trustees' customs and practices is so important.

If you'll post a little more about your case and other questions you might have, we can help you sort out what your options may be. However, you'll get the best advice from an experienced bankruptcy-specialty lawyer in your area. Since you've already retained one, make an appointment to sit down and go over your financial details together and see where you come out on the Means Test. If you're under the IL median income and he's still pushing you to Ch 13, then politely ask for your retainer back and move on. Some lawyers will push you into Ch13 unnecessarily because they make more money from you filing Ch 13 than Ch 7. I'm not saying this is the case for you - just something to keep in mind.

[spell]

LRPRN is right about the means test. You may be forced into it based off of the biz.
But remember, there's a huge difference between triggering the means test and failing the means test.

Don't hold your breath that the large firm like Geraci will be that helpful. They tend to blow cases like yours off as "too complex" they seldom do irregular incomes.
Try a medium sized firm like www.leederslaw.com or www.chicagobankruptcynetwork.com this will balance size with experience.

[Chicago]

Thanks! With my tax return and business income along with the earnings from my temp job, I come in right around $42,355 for the year, so just under the median income for Illinois with no dependents.

$38,079.60 - temp job
$2486 - 2006 Federal/Illinois Tax Return
$1790 - business income

Not sure if they count the tax return as income as I've read yes and no from various postings on this board so I included it just in case. Without it I'm at $39,869. Also, $650 of the business income was cash from bars so I included that as well just to be above board. Without that I drop to $39,219.

I stopped DJing on the weekends so my business income has been zero for April and May. And I've been going on more auditions lately so I haven't been working full 40 hour weeks at my temp job.

I made a couple of additional appointments for later this week with some smaller firms (not the two Spell mentioned but I'll make appointments with them as well) and am better prepared than when I first met with Geraci back in March. I'll let you know how they come out.

[Chicago]

Okay, so I had another free consultation today with a great attorney by the name of Kelly Smith at the Law Offices of Stuart B. Handelman here in Chicago. She was amazed at how organized I was with different printouts for income, creditor summary list, expenses, assets, the last six months of statements for all my creditors, last year's worth of bank statements, 2006 tax return, etc. so she just had to plug in the numbers. According to her calculations, I do fall under the median and am eligible for Chapter 7, even with the sole proprietorship.

After she told me that, I brought up what I'd been told at Geraci's office and how they put me into a Chapter 13 after I'd retained them. Technically, I shouldn't have been talking to her as I'd already retained another firm but I didn't bring it up until the end so, oops. She couldn't believe what they were forcing me into.

Needless to say I called Geraci's office when I got back to work and told them I was closing my case, drafted a letter stating the same thing, and walked the letter and my "red folder" of info back over to them. They said they'd refund my money in about two weeks if there was any left over after itemizing work done on my case. I'd only had the initial consult plus two simple emails replied to by my attorney. I feel so much better now that I'm done with that horrible firm.

I have another free consultation tomorrow but the lady will have to be a superstar to top how awesome Kelly was today. I'll keep you posted.

[Chicago]

Ha - just got an email from the attorney at Geraci's office - barely 45 minutes after I dropped off my paperwork and closed my case.

"I received your red folder and msg that you want to jump ship; what
gives?"

Do I even need to answer him? Or will they charge me for that, too? Suggestions?