Chapter 13 business owner

[petej]

Hello all and I'm glad I found this amazing forum. Lots of good information. I just recently filed a chapter 13 after having some serious problems with a business I have owned for over 20 years. For the past 7 months cash flow has been reduced by over 50% and we just couldn't keep up with pretty hefty unsecured loans totaling over $79,000.00.

My question is has anybody else on here been a business owner that filed chapter 13? My personal and business finances are all kind of interrelated. If so I was curious as how the trustee deals with a business owner. Do they delve deep into the inner workings of the business? For example do the question subcontractors or do they need more specific tax information?

Any information would be highly appreciated as now the avalanche of paper work has just begun and the stress level is increasing substantially in anticipation of the 341 meeting and how they handle business owners that don't have pretty clear cut pay stubs from employers.

[HHM]

Are you filing with an attorney?

If not, you have really stepped into the lions den by filing chapter 13 pro se with a business. Being self employed and filing chapter 13 do not go hand in hand

If your sole source of income is the business, you can expect the trustee to want at least annual reports, and more likely quarterly, or even monthly report of cash flows, etc during the life of the repayment plan. In addition, you will probably need to supply recent tax returns etc. But to answer your question, yes, they will probably delve somewhat deep because they need to be satisfied that you have, and can maintain, disposable income for the life of the plan.

[petej]

Thanks for the quick reply and yes I do have an attorney that says he specializes in chapter 13. There was no mention of quarterly or monthly reports, however he did mentioned annual reports. Sounds like you are really under the microscope for the term of the plan?

[petej]

converting to a chapter 7

After reading through this forum most of last night and this morning I have learned a lot. I wish I had found this forum before I filed a chapter 13 because a chapter 7 may have been a better alternative, so I'm looking for advise.

A little info first. I own my home and owe about as much as it's worth so I don't think that will be an issue. I am current with the mortgage. I own my vehicle free and clear and the kbb value is listed at about $9,000.00. I owe about $12,000.00 in back taxes including 2007. I am my business basically so my business assets might be $1,000.00. My personal assets combined might be $2000.00. The fee I paid the attorney is $3,000.00 and is included in the chapter 13. I have about $77,000.00 in unsecured debts. I could qualify for a chapter 7 I believe because my previous 6 months of income is below the median. The chapter 13 calls for a payment plan of $600.00 a month for 3 years, although from what I read this probably will be increased as my business situation improves.

So given this information would you think a chapter 7 might be a better alternative? I know I need to talk to my attorney about this but wanted to get some input first.

Thanks to any and all for any insight. Like I said before, I wish I had read this forum before filing. God bless..

[HHM]

If you are below the median (although, since you are self employed, you can probably expect a lengthy inquiry from the US Trustee), then your situation seems like a no brainer to file Chapter 7. Thus, I am not even sure why a chapter 13 would have been considered in the first place.

The only caveat with the 7 could be the equity in the car. If you cannot exempt all the value, then you may have to pay some money to the chapter 7 trustee. But other than that, you should be filing a chapter 7, not a 13.

[petej]

That is exactly the feeling I got last night about 3am in the morning after reading through various threads similar to mine.

From my understanding I will have to pay the value of my vehicle ($9,000.00 plus the $12,000.00 back taxes and of course the attorney fee of $3,000.00) for a total of about $24,000.00.

How does that work in a Chapter 7? Do you go on a payment plan?
Or is the secured debt the reason my attorney just suggested a chapter 13 in the first place.

Trying to line up the duck before I call my attorney for a meeting to discuss...Thanks

[krielly]

Well, my husband was self employed when we filed, of course, we filed old law.

We've been EXTREMELY fortunate that we never had to supply annual reports or tax returns since the filing date.

From what I read here, this is abnormal though...........

This was pretty much the reason we were forced into a 13, though. He had too much equipment to exempt in a 7. Vermont only allows a 5K exemption for "tools of the trade". He had about 20K.

[HHM]

Ok, I didn't notice the tax issue...that is probably why the 13 was suggested.

All things considered, you are coming out about the same as you would if you filed a chapter 7. (you would still have to pay the taxes, presumably).

Thus, NVM what I said above. Being in a 3 year chapter 13 that is going to take care of back taxes, and given the numbers you have tossed out, you are fine.

[petej]

Yes, I guess it works out to be about the same.

Another question, I just received the paper work from the Bankruptcy Court this afternoon and something just shocked me. The plan that we proposed when we filed was $600.00 a month for 3 years. These papers state I must submit a payment of $1,100.00 a month starting one month from when I filed (filed April 24th).

Is that kind of increase normal even before the 341 meeting (scheduled for May 30)??

[oldrocker]

petej, I had forgotten about this thread untill I saw your posts about the chap 13 payment amount confusion. I to am a small business guy filling a 13 (I guess). Ran the business for the last 21 years (as owner for the past 13). Similar problems, 72k in unsecured and 22k in tax debt (income tax). Income is about half now of what I was used to, damn recesion. We are over median but qualify (just barely) for a chap 7. In my case though I have always strickly kept store finances and personal finances separate, even though I'm a sole proprietor. I'm not behind on any vendors or taxes related to the store (restaurant).

At our first consult my lawyer said my (probable) plan payment would just cover my taxes, his fee and the trustee's percentage. He is willing to attempt a chap 7 with a chap 13 as a fallback should problems arise. But I have to admit the 13 seems like much smoother sailing, possible exemption issues, value of business issues, cheaper upfront cost and some other issues. I'm actually still somewhat on the fence about which way to go but am leaning to a 13 right now. You are farther along than me, we will be taking our stuff (and payment) to our lawyer in a week or two and filing by the end of the month. So I'm not sure yet what all hoops we will be jumping through.

Good luck with yours and keep us informed as to how things go, I know I will be very interested in how things work out for you. Now I've got to figure out how to keep the business going post filing. Not looking forward to it. I see many issues ahead.

[petej]

Hey Oldrocker,
I'm just recently into the process myself. I filed the end of April for a chapter 13 because, like you, my business income is less than half what is was this time last year.

Even though we are both business owners it seems we have a somewhat different situation. I really have no inventory or business assets, maybe around $1,500 for office equipment and I work from my home. So you need to ask the questions that relate to how your business might be affected in a chapter 7 with total liquidation, minus exemptions.

Because the previous 6 months have been terrible for my business ( I actually lost money for the first time in 20 years) my means test was way below the median so I actually qualified for a chapter 7. I chose the chapter 13 because my home has some equity and I did not want to risk the trustee selling it in a chapter 7 (I am current with the mortgage). Also, because I was below the median, the payment plan is only for 3 years and basically covers all my back taxes, the estimated equity, the lawyers, and a tiny percentage of unsecured debt.

My experience so far? Panic when my proposed payment of $600 was increased to $1,100 even before the 341 meeting. Turned out to be a clerical error What I gather from my attorney; business owners can expect much more scrutiny from the trustee. In fact he said that the scheduled 341 meeting at the end of this month will be rescheduled and to expect to actually meet at the trustees office. He also indicated that as a business owner the trustee will probably require monthly P & L's throughout the plan. And finally, he says that the plan may change if my income increases and the trustee sees more disposable income. Seems like business owners are put under the microscope.

I'll keep you posted as things progress. Let me know how it's working for you too. Good luck and stay strong. Like many previous posters have said, bankruptcy is a "business decision" for everyone.....

[wooisme]

i filed 13 and self employed independent contractor and you can file bankruptcy, so whoever said they don't mix doesn't know what they are talking about. I have had NO problems with my chapter 13. they took what i made in 6 months prior to filing (all different amounts) and divided it by 6 and that was what they came up for income per month. All i am required to do is show proof that i pay my quarterly estimated taxes.

[HHM]

i filed 13 and self employed independent contractor and you can file bankruptcy, so whoever said they don't mix doesn't know what they are talking about. I have had NO problems with my chapter 13. they took what i made in 6 months prior to filing (all different amounts) and divided it by 6 and that was what they came up for income per month. All i am required to do is show proof that i pay my quarterly estimated taxes.

I didn't say a business owner can't file chapter 13...and lets be fair, an "independent contractor" (or a 1099) is a far cry from someone who actually owns and operates a full fledged business.

I am glad your BK went off without a hitch, but at the same time, the OP should be informed that, on average, a business owner in chapter 13 is more heavily scrutinized than the average BK filer.