help needed... I'm exhausted and in need of some perspective...

[On-the-way-down]

(not sure which category this was best for)
Hello everyone. I sure I'm not the first to feel the pain of just posting in this forum but the responses seem very supportive.

I haven't been able to find the answers to my questions yet and I've been on the internet for the last 4 hours (finally found this forum 1 hour ago). I'm exhausted.

I'm pretty sure we need to file BK (chapter 7 is the direction due to the lack of income). Note: It just dawned on me: we've been receiving about 5-6,000 per month in rental income... this may push us over the CA limit for 2 people....!!! But my Qs:

My wife and I have $140,000 in unsecured credit card balances (we were both in real estate and have had to resort to using them to cover ourselves over the past year). $43,000 is from personal guarantees that were issued to our llc's. So here are the 5 key parts:

1. Our primary & investment properties are about to go into foreclosure: We're prepared to let all 6 homes go. One just became the bank's but they haven't sold it yet so there is no deficiency judgment filed against us at the moment. The deficiency should be near 175k between the 1st & 2nd.Can I file bk before they can get a judgment on this investment property against us?

2. Our primary property is behind by 5 months, and the other 4 inv properties by 4 months with sale dates looming as early as March of '09. All are upside down to some degree, our primary Calif. home by about $270k. On these investment properties, can all judgments be avoided by filing ch7? How are those treated? Can we get out from underneath these properties through the bk?

3. We are 50% partners with a family member in a business and owe $12k that I'm largely responsible for on a business LOC. Can this be kept out of the ch7 bk so his credit is not ruined (we both signed as personably liable)? Can that be paid down by someone other than myself without preferential treatment being claimed?

4. We have a pending lawsuit that we are the class representatives for. It's been a year and so far we are told that if everything goes smoothly payout could be the summer of '09. We have $180k in unreimbursed expenses. I'm assumming through a settlement we'd be lucky to get half of that.

5. We have about $80k left in a 401k that's protected.

So with that being said... we have since started a company over the last 6 months and now have purchased $10k in manufactured products to get into retail stores. The retail market has been hit hard, particularly in the last 4 months, making the goal of getting our product into stores even more challenging, thereby increasing our difficulties of generating income from this new business. We have no income since my wife and I both dedicated ourselves to building it (to have gotten other jobs would have been like putting a band-aid on a broken leg based on our expenses).

We hoped we'd be able to get our business going, get our money from our settlement and were willing to allow our homes to go to a short sale (if they actually sold) or foreclsoure if necessary. But with $140k in unsecured debt, a total of about $270k in negative equity on homes that'll get foreclosed (plus another $250k neg on our primary)..... the million dollar question: Are we in denial to think that we can pull out of this by building our business in this ridiculous retail environment and with our expected $100k from the settlement in 6 months?

We only have the rental income of $5k/mo until the rental properties get sold or foreclosed and we've decided not to pull one cent more from the 401k (already used $10k toward the business). Will the potential judgements, or if we were lucky 1099s (so we could file insolvent on taxes) just bury us along with the credit card holders if we can't pay in the upcoming months? Am I asking a dumb question when I ask, is a BK the way to go at this point???

I want to but I'm worried about the family member's credit and our bus LOC debt and the $10k in products we just purchased through our c-corp. And I'm worried about losing the future income from the settlement. Can someone put this in perspective for me/us? We're in our mid 30's and have a daughter in second grade. We need a fresh start and I don't want to get hit with judgments that we'd be stuck under because we didn't know to file before they were awarded.

please help in any area that you can.... we need some direction.... thank you in advance...
I will be scheduling an appointment with an attorney asap to review our circumstances but need some support/perspective from those who have been there...

[Flamingo]

Well, first of all you need to schedule a consultation with an attorney experienced with business BK's since your situation is complicated. Take with you a complete listing of all your bills, monthly payments, sources of income, paystubs, listing of all assets and your most recent tax returns, state and federal.

When it comes to an intermingling of business and personal finances, things can get very complicated and there are many things that depend on in what state you reside.

My husband is in retail and I know how bad it is out there. Anyone in real estate also that we know has had to change careers. Best of luck to you....

[southernbelle]

I also had a business, but it was on a small scale and I was in denial for a while in thinking that I could rob Peter to pay Paul to avoid bankruptcy, but ultimately BK was a business decision that was made to give me peace of mind from creditors and to resolve debts I knew I really couldn't pay.

I agree 100% with Flamingo when she tells you to schedule several appointments with business BK atty's in your area. That was what I had to do. Those free consultations will be more helpful to you than you might think. Since my BK wasn't straight forward, I needed to find a legal professional that was familiar with the complexities of my case and wasn't ready to dismiss my case into a Chapter 13 without trying to understand the facts.

On the other issues, I'm no expert, but IMO:

If you are partners in a family business, you cannot claim certain debts and omit others. You will be required to list ALL debts both personal and business if you decide to file Chaper 7. It might be extremely hard to keep the family business completely out of it. Check out this link which gives some insight on Defenses to preference actions, specifically payments made in the ordinary course of business on ordinary business terms. This is also a good source of other general information.

http://www.moranlaw.net/preferences.htm

[GreenInkOnPaper]

My opinion: Sounds like your properties are going into foreclosure, right? Do a 7, get rid of EVERYTHING and start fresh. Good Luck!!

[On-the-way-down]

thanks for the suggestions everyone, I appreciate it.... any other thoguhts are definitely welcome...

[mmenz22779]

the business questions I cannot answer but the real estate ones i can

you can file anytime before or after foreclosure. If you file before foreclosure then it is less work as the properties become part of the bk and are surrendered. how ever it sounds like you are going to have some that are and some that are not so the ones that get included in BK no worries done deal the ones that are already gone, then you can file a 982 with the IRS for insolvency for protection for the 1099 that they will issue you.

from what i remember you have to claim the 982 during the year they foreclosed. (but i can be wrong)

[Flamingo]

the business questions I cannot answer but the real estate ones i can

you can file anytime before or after foreclosure. If you file before foreclosure then it is less work as the properties become part of the bk and are surrendered. how ever it sounds like you are going to have some that are and some that are not so the ones that get included in BK no worries done deal the ones that are already gone, then you can file a 982 with the IRS for insolvency for protection for the 1099 that they will issue you.

from what i remember you have to claim the 982 during the year they foreclosed. (but i can be wrong)

One thing with claiming insolvency with the IRS when you get those 1099s...your chances of getting audited are extremely high - if you go that route, consult with a tax expert to prepare your tax returns.

[mmenz22779]

I have been audited in the past,

not fun it was due to a 179 expense, i just paid the 150 they wanted and that was it.

The auditor was a nice person.

[On-the-way-down]

thank you everyone. I was able to reach an attorney today and get many answers to my questions.d lien holder has not yet

I found out that although one property has been returned to the bank, the 2nd lien holder has not yet issued a 1099. Therefore by filing before they can issue it we can avoid 1099 income for tax purposes. Also, although unsecured judgments can be included in a ch7 bk taxes owed obviously cannot.

2. We would be able to get out from under all properties by filing before they to foreclosure or short sale.

3. On the business side with our partner/family member: the responsibility of the debt is no longer technically mine but it remains as an open balance as the responsibility of the llc and the other partner and will not affect his credit score or report in any way.

4. Regarding the pending lawsuit: since lawsuits are never a guarantee a trustee person may decide it's not worth pursuing. In this case it's a class action lawsuit and to be completed w/i 2 years sounded optimistically quick to the attorney I spoke with. Therefore they may not wish to keep the ch7 open that long due to the volume that they have.

Next, the products that we just purchased through our c-corp cannot be touched, since they belong to the c-corp. And as mentioned above it is possible that the settlement could still stay in our possession if they trustee person is not overly aggressive.

But I was told that if the properties go to foreclosure, and then a BK is filed it would look worse to have all of those on the credit report since it shows that no effort was made to stop the bleeding (so to speak) which a bk filing would show. Plus we were told that if the 2nd lien holders issued us 1099s, whose taxes cannot be erased through a bk later, and there were any potential judgments by the unsecured creditors they would just put us under.

She recommended not wasting time with a short sale when a bk can be filed and walk away from the debt by handing the property back to the lender. Those are all my notes from our conversation.

Although I'll have to ask again how turning over the properties back to the banks makes them unsecured and easily discharged... that sounds off somehow... I'll have to double check.

So the overall thoughts were that we are in an ideal position before any 1099s are issued and that we should file very soon... Thanks for the advice, I hope my information is helpful to others....

[relief13035]

My husband and I own a total of 4 homes. It was an investment we made for our future and then the real estate crash happened. Today at our 341 we surrendered (2) of the homes and I can't describe what a relief we feel now that the burden is off our shoulders. Our tenants (who have problems of their own paying the rent) will probably have several months to live rent free until they are kicked out by the bank. Hopefully they will save their money so they can get back on their feet.

[On-the-way-down]

We pretty much did the same... my wife and I both worked in real estate for the last 6 years. We contributed a lot to her 401k and although we didn't build a regular savings we thought that we were at least doing well by putting our money into long term assets in the 5 properties we bought. But one was in Stockton and took a major hit with a large mortgage and the rent didn't cover the mortgage. And obviously appreciation went out the door... that created the major financial stressor along with the fast decline in real estate business...