Consumer debt or business? Does it matter?

[asmithfamily]

My first post!

I have 240k personal, mostly cc debt, and a 50k loan, signed personally, owed to bank that was a business line of credit for a partnership that we closed in December. A lot of the cc debt was cash advances that went to funding the business. When the business closed, we had a loan to us from the business that was liquidated of about 260k.

My question is, since the cc debt was partially, or maybe even mostly, used for the failed business, does that change anything? Or, can I file a normal joint Ch 7, assuming the means test is passed?

This whole process seems a little scary! I do plan to use a lawyer, but I won't have an appointment for 2-3 weeks and that gives me a lot of time to worry about this.

[phoenyx]

My first post!

I have 240k personal, mostly cc debt, and a 50k loan, signed personally, owed to bank that was a business line of credit for a partnership that we closed in December. A lot of the cc debt was cash advances that went to funding the business. When the business closed, we had a loan to us from the business that was liquidated of about 260k.

My question is, since the cc debt was partially, or maybe even mostly, used for the failed business, does that change anything? Or, can I file a normal joint Ch 7, assuming the means test is passed?

This whole process seems a little scary! I do plan to use a lawyer, but I won't have an appointment for 2-3 weeks and that gives me a lot of time to worry about this.

Chapter 7 is very commonly filed by people due to failed businesses, I'm doing so myself.

It sounds like you might wind up filing Chapter 7 individually, which would discharge the appropriate debts in your name, and release you from liability in the appropriate debts in the company's name. If your company is already shut down, unless your attorney advises you otherwise or creditors force the company into bankruptcy, the company won't be filing bankruptcy itself.

Definately talk to the attorney about all the cash advances, but I don't think you should run into much of an issue except for what I've listed below. Note that your attorney, and maybe other members, would have more information that I do. I don't have any cash advances in my Chapter 7, I'm just relaying information that I've ran across in all my research on bankruptcy.

You could run into some claims by your creditors that the cash advances shouldn't be discharged. But those cash advances would either have to be within 70 days before your bankruptcy, or they would have to prove that you made those cash advances knowing that you wouldn't be paying them back. Most of the time, creditors don't wind up objecting on old debts. But, the large amounts that you have could prompt them to object.

Another problem you could run into is if you paid taxes with those debts, that the creditors could object that you transfered a non-dischargable debt (most taxes aren't) into their dischargable debt.

Additionally, you will have to talk to your attorney more about this, but I've read that if you are mostly filing on business debts, that you can avoid the means test in Chapter 7. I'm not sure what percentage it would need to be of business debts, but start computing the exact breakdown in your situation of business vs non business debt.

[HHM]

Since much of that debt was on "personal" credit cards, it really does not matter that they were used for business purposes.

But as phoenyx pointed out, given the amounts involved, you may face some objections by creditors depending on when those cash advances were made. But otherwise, in this circumstance, what you used the cash advance for is of little consequence to your BK.