Another Pre-13 question please

[Vandervecken]

Good afternoon! I'd like to ask another question if I may.

I own several rental homes, and the rental LLC has its own Taxpayer Identification Number. I opened two credit cards using the company's TIN, with myself as guarantor. The objective was to build business credit in the company's name for future expansion.

When I file my bankruptcy (after the divorce is final) what do I do about these two accounts? I suspect that since the LLC is single member, the credit card companies will close them. I also suspect that any remaining balance after the C-13 is complete will still be the responsibility of the rental LLC, even though my personal obligation is discharged. So I guess my options are:

1. Include them in the C-13. Let them collect payments like any other unsecured creditor. When the C-13 is over, the LLC has to finish paying off the balance.
2. Include them in the C-13 as a 100% payback (is this even possible?)
3. Not include them, and let the LLC continue to make payments. Maybe they'll stay open.

Does this seem right? What would you do in this situation?

Thanks!

[justbroke]

Include them in the C-13. Let them collect payments like any other unsecured creditor. When the C-13 is over, the LLC has to finish paying off the balance.

You must include them in the Chapter 13 since you have a personal guarantee. You want that personal guarantee (obligation) to be discharged by the Chapter 13. Even before the Chapter 13 is completed, the LLC would be obligated on the debt since there is no co-debtor stay for a non-individual (see 11 USC 1301). So you may have difficulty with any litigation/suits against the LLC unless the LLC is paying the debt normally. As to the status of the account -- whether it will stay active -- is not a question I can answer.

Include them in the C-13 as a 100% payback (is this even possible?)

You can't include them as a 100% payback because there is no detriment to an individual. At least that's the way I have read the available caselaw.

Not include them, and let the LLC continue to make payments. Maybe they'll stay open.

You must include them. You don't get a choice of what to include and not to include. You are under obligation to list every debt that you owe when you file your schedules. It is highly unlikely that they would stay open anyhow. Most "sophisticated" creditor (basically any bank or credit union) will automatically receive notice of the filing of your bankruptcy (including your social security number (SSN)). Whether they act immediately is a question I can't answer. It is unlikely that the account will stay open, but it's possible that they may miss the filing and the account stays open.

Just so that you know, there is nothing in the Chapter 13 code that says that you can't continue to operate a business and incur debt, for the business, in the "normal" course of business operations. That said, are you going to continue operating these properties? Do you actually have a positive operating income? I hope that you have an experienced attorney to help you navigate those waters.

[Vandervecken]

Just so that you know, there is nothing in the Chapter 13 code that says that you can't continue to operate a business and incur debt, for the business, in the "normal" course of business operations. That said, are you going to continue operating these properties? Do you actually have a positive operating income? I hope that you have an experienced attorney to help you navigate those waters.

Thanks, JB!

To answer your question, because of my (soon to be) ex-wife's actions, I've sold off most of my rentals already (there goes my retirement income...) The ones that remain do cash flow positive, but depreciation and previous costs are deferred and show up on Schedule E as negative. In fact, one of them is in a very good neighborhood; if it wasn't for the two year lease, I would actually take it out of portfolio and make it my primary residence.

My attorney is pretty good, but most of his clients have wanted to get out of their properties, not keep them. I have the issue that a couple are upside down and can't be sold, but they make some money. I would love to just t turn them over to the trustee but I can't because my (soon to be) ex is on the mortgages as well and the bank would go after her for the shortfall. Right now my BK attorney is waiting until the divorce is final before filing.

[justbroke]

Vandervecken your attorney is wise not to mix the bankruptcy up with the divorce! Make sure the final property settlement and decree are done and then you can decide how to deal with them in the bankruptcy. Bankruptcy and divorce go almost hand in hand (either causing the other, in some cases).