Business going under... need help and advice

[lisac77]

My husband and I bought a business back in 2004. It has been chugging along, barely breaking even, and only then because my husband works there every day from 8 AM to 10 PM with no breaks.

My husband was shot in an armed robbery last Monday. It was the fourth break-in in two months. Since my husband has been recuperating from his injury, the business has been closed and so we are facing bankruptcy.

Both he and I are personal guarantors on the loans for the business. I take that to mean that we will be held personally liable when we are unable to make the business loan payments. For the first time tonight we both realized that it is not possible to continue the business and that we will most likely be facing corporate and personal bankrupcty.

We have no desire to continue the business, and from my readings I figure that Chapter 7 bankruptcy is the most expedient way to get the debts discharged. I have run up some personal debt while the business was going, so we will need to get that discharged as well.

We live in Texas. I currently work and make well above the median income for Texas. I did a means test calculator, and according to it we will be able to file for Chapter 7 personally. We have a 3-year-old son and currenly pay a nanny to watch him, but after we close down the business, I think it is best for my husband to become the primary caregiver until after the debts are discharged. So we won't be able to deduct the child care payment.

We were completely unprepared for this situation! Of course we had no way to know that my husband was going to be shot in a robbery, these things just happen. However, we were completely unprepared to do a bankrupcty. I've still been using my credit cards (especially since Christmas is coming up) and things are just crazy.

The total business debt is around $525,000. Our personal debt (aside from the mortgage) is around $15,000. We own several old cars outright. I have a 401(k) from my company, and I also have two bonuses due next year, one to be paid out on February 28, and one that will vest on March 31.

Here are my questions:

1. Should I worry about filing before my bonuses come through next year? The one coming in at the end of Feb is only around $5000, the other one is worth lot more, but it is not a cash bonus, it is kind of like a stock option. It won't show up on my payroll unless I exercise the rights.
2. What do we do about personal savings accounts? We both currently have some money put away. Should we spend it? Move it? Hide it under the mattress?
3. Is it better for my husband to remain an unemployed primary caregiver rather than finding another job right away?
4. Should we set a cut-off date for credit card usage then wait 90 days to file?
5. Should we continue to pay our credit cards/mortgage/business loans/etc.?
6. Should we sell off some of the extra cars?

That's about all I can think of right now. Thanks in advance for any help you can give us!

[lisac77]

Thought of another one:

Our mortgage was configured as an 85/15/5 so we have both a first and a second mortgage. They are both 15 year loans, and we have substantial equity in our house.

Will we be able to keep our house? And, if yes, will we be able to keep our low rate (5%) 15 year mortgage?

[lrprn]

Welcome to the Forum, Lisac77. I'm so sorry to hear about your husband's injury - what a horrible thing to happen! - and am very thankful to hear he is recuperating and will recover.

Now to your questions....with a situation as complex as yours with intertwined personal and business debts and your income above the median, there are no easy answers to your questions. You need to find a very good bankruptcy lawyer who understands the ins and outs of both personal and business bankruptcy to advise you on what is best in your family's situation. One good thing at least - you live in Texas which is a bankruptcy-friendly state for debtors.

Start by contacting 3-4 lawyers in your area who specialize solely in bankruptcy (and don't pick the cheapest one - this is not the time to scrimp, especially in your situation!) Most bankruptcy lawyers provide a free half-hour to hour long initial consultation without obligation. If you can find one that is or was a bankruptcy trustee in your area, that's the best of all worlds. With the business involved, be looking for a lawyer or firm that does both Ch 11 business bankruptcies along with Ch 7 and Ch 13 personal bankruptcies.

For every lawyer visit, bring along a complete listing of ALL of your debts, a listing of ALL of your assets, and averages for ALL of your family's living expenses over the last year. Since your business is also involved, bring along the ledgers for the last six months to a year as well. You both will learn a great deal during each visit and talking with several lawyers will give you an idea if you can work with one or not.

These websites explain how to prepare to meet with a bankruptcy lawyer and what to ask during the initial interview:

http://bankruptcy.lawyers.com/Bankruptcy-Preparing-to-Meet-with-a-Lawyer.html

http://research.lawyers.com/lawyer-interview-questions.html?site=537

http://moranlaw.net/interview.html

Until you and your husband speak to several bankruptcy lawyers, don't do anything hasty. You have time to sort out what's best for your family in the long run.

Please keep us posted on what happens during the visits and remember we've all been where you are right now in one way or another. We understand what you are going through, and we're here to help answer questions, for venting, and for emotional support any time you need it. Welcome!

[lisac77]

I know: we have to get a lawyer!!!! I kept telling my husband that over and over again, but he hates lawyers and was kind of just hoping we could walk away and let the bank take over the business. I think bankruptcy would offer us more protection, so that's the way I was leaning. I told him that you can't just walk away from $500,000 debt with no stratches. Hope springs eternal, I guess.

[Spartan]

You can't just 'walk away', b/c you have guaranteed the loan personally. And you have assets and income the creditors can go after. Definitely get a lawyer. If you don't, you will soon have to anyway. Good luck and best wishes. Wishing your hubby a speedy recovery. Hope they nail the shooter scum.

[lrprn]

I know: we have to get a lawyer!!!! ... I told him that you can't just walk away from $500,000 debt with no stratches. Hope springs eternal, I guess.

Your husband's denial in this case can hurt you and the family financially for decades to come. Go to the bk lawyers by yourself if you have to. Don't put it off. This situation is going to end up in a tangled mess if you delay to the point your creditors can get you both into court (usually 6-12 months after non-secured payments stop and within 2-3 months after secured payments stop) for judgments against you. Bankruptcy stops all that in its tracks plus gives your family the chance for a fresh financial start to boot.

Find a lawyer you can work with who knows business and personal bankruptcy well - the sooner, the better. Even if you both end up in Ch 13 in order to save the house, your fresh start is only 3-5 years away after filing. If you qualify for Ch 7, then it could be only six months away! But by doing nothing, because you have assets worth taking, the financial agony (and the need for retaining lawyers over and over for the inevitable court cases) could go on for many more years with possibly devastating financial losses and poor credit ratings haunting you both the entire time.

You both need to make sound financial decisions for your family from knowledge and not allow fear or pride to interfere. Everything is on your side at the moment - it won't stay that way forever. Seize the day and start making appointments with lawyers. Let us know how it goes and what you find out, ok?

[lrprn]

Thought of another one:

Our mortgage was configured as an 85/15/5 so we have both a first and a second mortgage. They are both 15 year loans, and we have substantial equity in our house.

Will we be able to keep our house? And, if yes, will we be able to keep our low rate (5%) 15 year mortgage?

Hard to say without more information, lisac77. When you say "substantial equity", do you mean you would have many thousands of $$ left over AFTER paying off both your first and second mortgage in total?

Texas is one of the most generous states to homeowners who file bankruptcy. To see the home and other exemptions Texas allows in bankruptcy, see http://www.texasbankruptcylaw.com/exemptions.html

[lisac77]

Hard to say without more information, lisac77. When you say "substantial equity", do you mean you would have many thousands of $$ left over AFTER paying off both your first and second mortgage in total?

Texas is one of the most generous states to homeowners who file bankruptcy. To see the home and other exemptions Texas allows in bankruptcy, see http://www.texasbankruptcylaw.com/exemptions.html

Yes, we have about $50K-60K in equity over the amounts of the mortgages.

I guess now we could lose everything.

It's not nearly enough to pay off all the debt in the business.

[lisac77]

Well, maybe not. Here's the statute:

ASSET


EXEMPTION DESCRIPTION


LAW SECTION

Homestead


Unlimited; property cannot exceed 1 acre in town, village, city or 100 acres (200 acres for families) elsewhere; sale proceeds exempt for 6 months after sale (need not occupy if not acquire another home, Property 41.003)

May file homestead declaration


Property 41.001, 41.002



Property 41.005

So if we're allowed to keep unlimited equity that means we could keep the house? Maybe?

I will be calling the Bar Association first thing Monday morning. I will probably take a day off of work this week and schedule lawyer interviews all day. Luckily I have some vacation days left. I guess DH can come with me if he wants, but either way, I'm going.

[lrprn]

I will be calling the Bar Association first thing Monday morning. I will probably take a day off of work this week and schedule lawyer interviews all day. Luckily I have some vacation days left. I guess DH can come with me if he wants, but either way, I'm going.

Good for you! Encourage your husband to come along because he will need to be involved if filing ends up your best option, but if he refuses, at least this way you will understand what your family's best options are. Please keep us posted on what happens!

[CindyLou]

if you have lived in Texas for a while (not sure what the time is with the new BK law...) your entire house should be exempt no matter what your equity. Prior to the new law, many many many people have relocated to Texas; bought Multi-MILLION dollar mansions then filed chpt 7 bk and kept their houses!!!!! The new law prevents people from being able to move there to do that, but it you have lived there some time then you should qualify for that no-limit homestead exemption as long as you meet the other requirments.

[lisac77]

We've lived in TX for 29 years (me) and 11 years (him) and we've owned that house for almost 4 years. I really do want to keep the house. That and my bonuses (which I have EARNED, dammit!) are the two main things I am interested in keeping.

I am still processing my anger at my DH. He wanted this business over my objections, then hated it for 2 years, now we're facing bankruptcy. We had substantial savings and NO DEBT (aside from the mortgage) before that stupid business. I'm just so pissed off!

[CindyLou]

You each have up to 30,000 in personal property (which doesn't even take into account your house equity) which includes unpaid wages and I would think applies to a bonus if paid through your payroll. Look at the exemptions link above and read the personal property paragraph and the wage paragraph. you are pretty safe in Texas. you will feel better once you see an attorney. Go in organized with all your info to get the most out of your consultations.

[SinkingFast]

New Law, you can Exempt up to $125K in equity. But if you've owned the house longer than 910 days (3 years), I believe Texas had no Homestead Limit under Old Law. Either way, it sounds like all the equity in your home will be protected.

Definitely talk to some attnys but this may be what might happen,.........

Let the business die a natural death. File your last quarterly taxes for the business on 12/31 this year and let the business go. Since you are personally responsible for the business, all the debt rolls to you.

I looked for a $$$ limit you could discharge as an individual in Ch 7. I found a $$$ limit for Ch 13, but nothing listed for Ch 7. So you may be able to discharge all the debt as an individual.

You may still need to keep childcare. With your husband recovering, is he physically able to handle your child/children??

Whether you file before or after the bonus, the information will probably come out. Typically, at the 341, Trustees ask if you anticipate any significant increase in income. Are you eligible for bonuses?? So if you don't have the bonus physically in hand by the time you file, you'll probably have to disclose it when questioned at the 341.

If you haven't stopped using your CC's, you should now. You'll need to put time between your last charges/cash advances and your filing.

[lisac77]

You may still need to keep childcare. With your husband recovering, is he physically able to handle your child/children??

Whether you file before or after the bonus, the information will probably come out. Typically, at the 341, Trustees ask if you anticipate any significant increase in income. Are you eligible for bonuses?? So if you don't have the bonus physically in hand by the time you file, you'll probably have to disclose it when questioned at the 341.

If you haven't stopped using your CC's, you should now. You'll need to put time between your last charges/cash advances and your filing.

One of the bonuses is a yearly cash bonus. The other one is equivalent to stock options. The stock options I definitely want to keep. I will be heartbroken if I lose that money, but I can see that I may have little choice in the matter.

My husband's injury was relatively minor, but we may keep our sitter on part time so that he can be free to wrap things up and look for a new job.

I would like to talk to the lawyer before I make any final decisions about the CCs. We need to take the best steps possible here while still protecting as many of our assets as we can.

I feel that we are a little under the gun here because once we stop paying the loans the bank is going to start screaming, then the clock is ticking before they start to sue us to recover their money. This is what I want to talk to the lawyer about.

Of course we want to be as honest and above board as possible in this situation.