My BK7 case

[Klesko]

I just wanted to run my BK situation by the board and see if I have missed or anything else looks wrong.

180k in credit/loc debt. House in FC and one car in repo. I am in NC.

After alot of research I decided to file for BK but decided early on I only wanted to do BK7 and not BK13. We are ok with losing the house which we will do lose very soon. I was going to do BK7 in May, with some tweaks I could pass the means test, because we are above the median income. I needed the house payment to pass the means test because it is a large payment but my home lender wasnt wanting to work with us on the FC which was set to auction in march, almost 2 months before we could file. Without the house payment we would fail the means test and be forced into BK13. It would have taken about 8-9k to get the house out of FC just so we could give it back in May. After tax refund, and some savings we have about 12k saved up so it would have taken all of our emergency savings to save the house for 2 months.

So I decided to let the house go and get an apartment and to lower our income so that we could more easily pass the means test but once I started running the numbers I saw that I could get below the median income for my state.

I work as a consultant so it is easy to lower my hours. I decided I would take some time off the next few months to lower my income below the median income so we would auto qualify and make things much easier.

So my plan is to file in September, this will allow my income to fall a few k below the median income and then file. Then after the 341 meeting I will start my full hours again. Meantime we slashed our budget so that we would only be a few hundred negative a month and then use the 12k we have saved to cover the under amount for 6 months.

Anything I am missing? Everything sound good?

[kathy4530050]

Hi Klesko--

Your situation is a lot like mine. I, too, am a self-employed consultant. I wracked up $95,000 in unsecured debt and a $20,000 second mortgage to keep my business alive. I spent money on marketing and PR that turned out to be a colossal waste. Based on lousy professional advice (from an expensive lawyer), I changed direction with the business, hired staff I couldn't afford, and took some big risks. I did not live beyond my means or spend $$ on luxury items. I just made the big, big mistake of putting my business before my own financial well-being. NEVER AGAIN. Now, my house is going into foreclosure, which stings, but is not a financial loss as I had no real equity in it. I own my car, a 2001 Mazda, worth about $4,000. I moved to a new city and am currently renting, but my rent payment is about $200 more than my house payment was. I used to rent office space, but now I have a home office, and so needed a bigger house.

A couple of big checks came in in February and so now I am looking at filing in Sept or Oct. There's a lot I can do to "regulate" my income between now and then so I think I can come in under the median income ok.

I hired the first lawyer I consulted with, paid his entire fee, and now am having second thoughts about him. I have learned TONS more from this forum than I did from him. He was very vague in his answers to my questions and, I now think, lax in his advice to me.

First, I told him that I was waiting on over $20,000 in receivables and expected this $$ to come in in February, and he still advised me to file March 1st. He never told me the whole amount could be seized. I learned that from this forum. Next, he was going to enter my gross, not net income (??!!), and when I told him that was crazy, he then asked me to "ballpark" my business expenses, and didn't ask me to make sure I could document anything. From this forum, I have learned that I should be prepared to provide detailed P & L statements (with receipts) for each month during the 6-month "lookback" period. He did not know how we calculate a home office expense (like we do for our tax return), said nothing about hanging on to credit card statements, nothing about documentation of business expenses, and, I think now, gave me misinformation about calculating my household size (a big deal!)

Based on what I have learned here, I am having serious second thoughts about him and, given that this is a very high-stakes ordeal, I am now going to interview several other lawyers. I have compiled a list of questions to ask each one and am going to look specifically for one with small business experience. i was too uninformed to even know what kind of questions to ask when I hired my lawyer. I know a lot more now and am not willing to take ANY risks. If I end up with a different lawyer and even have to lose the money I paid the one I have, I'll do it just to ensure the best possible outcome. More than anything, I need to be absolutely certain that I hire someone who really, truly, and sincerely has my back.

Given that my strategy is a lot like yours, I will share with you what I learn from the lawyers I consult and hopefully we can strategically plan for a successful Ch.7. While you wait to file, I suggest you hang around this forum. The people here are very willing to share all of their successes, failures, and frustrations and it's so, so wonderful to communicate with people who are all going through, or have gone through, this extremely challenging experience.

Best of luck to you,

Kathy

[DebtStinks]

[StartingOver08]

One of the questions you will want to ask in your interviews with each attorney is: Do you ATTEND the 341?

There is a huge difference in the attorney actually attending and interacting with the Trustee and having the attorney send one of his 'new hires' to attend. Especially in the case of a self-employed debtor.

Kathy, as to putting down net or gross on your petition. You have to put down the gross amount and then itemize the business expenses including the estimated taxes. I just went through this and was successfully discharged in a Ch 7 and I was 70k over median income and filed on $1M of debt. If you do not have the numbers 'track' that is when you get additional interest from the Trustees. They are looking for assets and they assume certain things unless you spell it out for the Trustee.

The P & L helps the Trustee to understand your expenses so they are not challenged. The receipts help if they are challenged. And the back up copies of statements, if requested, show that what you are saying is true.

[kathy4530050]

THANK YOU. Good advice. I will definitely add this question to my list. And good for you! Wow--you are out from under a $1 million of debt. That's fantastic. Did your business survive?

[StartingOver08]

I am still in business, HOWEVER, I had to close my S-corp and its checking account because the business had debt that was personally guaranteed by me. I filed a personal Ch 7. I now am operating as a sole prop. I will form another S-crop when the revenues increase again. (As an S-corp saves many, many thousands of $$ on taxes since you are not paying SS tax on business expenses!).

It can be done. But when you have a small business you will need to document everything carefully for the Trustee.

BTW, the reason I had to close the business and its checking account is the debt incurred by the business still exists and the cc companies can get a judgement and sieze that account after discharge (because I only had a personal discharge). So naturally I did not want to earn any more under the business name. This way if they get a judgement for the business there is nothing to attach.