Small Biz Failing, $150k+ in Unsecured Debt

[johnsmith11]

I'm a little paranoid so I'm going to keep descriptions a little vague for my own sanity but I have a few questions that I need some assistance with. I started a business about a year and a half ago. I had $100k of my own start up capital. I got unsecured credit card lines with 3 major issuers for about $300k of which I borrowed about $250k using their ridiculously easy balance transfer to a checking account systems. I have made all of my payments over the last year and a half (minimum plus a little) and have paid the debt down to about $150k. Unfortunately my business which was successful last year has fallen off a cliff this year. I have given up all of my earnings from last year plus lost the cc money and almost all of my personal start up capital. I have 2 personal loans out (could be promissory notes if it would help) which I absolutely have to pay back before I could possibly file for BK.

Questions:

1. Would it look better for a BK if I had official promissory notes for the two personal loans and had payback in full dates close to now to show that I was trying to be responsible with my debt vs. the cc's which allow payment over time?

2. Since I made significant money ($100k+) last year but lost it all within a month of this year starting is there any chance to negotiate the large sum that the IRS is going to be looking for (since I won't have a dime to pay them with and if it happened any other time but dec/jan i would owe them nothing)? Yes I know this isn't exactly a BK question but its a factor in the BK situation.

3. If there's nothing I can do about reducing the tax liability I do have enough credit on my cc's to pay the taxes in full. The upside is that I would be turning a non-dischargable debt into a potentially dischargable debt. The issue with this is that I am afraid that putting a new debt on the same card as a long standing, paid on time debt might jeopardize my chance at a dismissal of the overall debt (potential issue with claimed fraud bc of ability to pay the debt back/insolvency/etc). Would they view the charges separately such that even if they didn't like the new charges it wouldn't jeopardize the old ones getting dismissed? If I could put it on a different card (amex) would that be better/worse/indifferent? (I am a little scared of owing to amex, i feel like they might fight harder/smarter in BK court).

4. Beyond paying the above taxes I can presently borrow directly to my bank account about $35k on those same cards which would allow me to definitively pay my 2 personal loans and have some working capital to try and keep my business afloat and turn things around (one last chance). My argument would be that I was making $20k+ a month last year and I thought if I borrowed for a fresh start I could make it happen again and pay back my debts. If I can't turn it around and have to file for CH7 would four months be long enough to give me decent odds of a dismissal, how about six?

5. Being that the amounts with each issuer are so large but the charges are so old are the cc's likely to try to fight me or let it go bc they wouldn't have grounds to fight it?

6. Since I hopefully have some time before the BK (if it has to happen), is there any company that you can do a sale leaseback type arrangement with a car, mine is presently worth over $10k and is paid in full. The goal would be to free up some capital and to get the equity down to the federal minimum of $3k or so.


I probably have more questions but its early in the AM and I've been reading posts on here for 6 hours straight and I can't think right anymore.

Thank you in advance for any help, it is much appreciated.

JS

[DebtEnder]

Questions:

1. Would it look better for a BK if I had official promissory notes for the two personal loans and had payback in full dates close to now to show that I was trying to be responsible with my debt vs. the cc's which allow payment over time?

BK does not care about who you paid and how much. Responsibility is a non factor as all debt to you is personally discharged. If you wish to pay back some of the debts after BK is discharged you are free to do so

2. Since I made significant money ($100k+) last year but lost it all within a month of this year starting is there any chance to negotiate the large sum that the IRS is going to be looking for (since I won't have a dime to pay them with and if it happened any other time but dec/jan i would owe them nothing)? Yes I know this isn't exactly a BK question but its a factor in the BK situation.

Best I can tell you her is if you do a chapter 13 taxes can be rolled into the plan and paid over the term of the BK13. other then that make sure you file, you have to do this. Talk with the IRS work out some sort of payment plan, don't ignore them otherwise you'll get the 10% not filing penalty and then 10% for not paying it on time plus all the other crap they toss on. The IRS is not totally heartless they will work with you if you talk with them before they have to call you. I have a friend doing this with the IRS now

3. If there's nothing I can do about reducing the tax liability I do have enough credit on my cc's to pay the taxes in full. The upside is that I would be turning a non-dischargable debt into a potentially dischargable debt. The issue with this is that I am afraid that putting a new debt on the same card as a long standing, paid on time debt might jeopardize my chance at a dismissal of the overall debt (potential issue with claimed fraud bc of ability to pay the debt back/insolvency/etc). Would they view the charges separately such that even if they didn't like the new charges it wouldn't jeopardize the old ones getting dismissed? If I could put it on a different card (amex) would that be better/worse/indifferent? (I am a little scared of owing to amex, i feel like they might fight harder/smarter in BK court).

Putting large charges on credit within 90 days of filing is a big no-no. The question you are going to have to answer to any attorney is have you added new debt within 90 days of filing. If you KNOW you are going to have to file BK sooner or later doing any sort of charging could be risky regardless of time frame unless it's maybe a year or more. I'll say this small charges for gas and food are not going to have the hammer fall on you. A $10,000+ advance might

4. Beyond paying the above taxes I can presently borrow directly to my bank account about $35k on those same cards which would allow me to definitively pay my 2 personal loans and have some working capital to try and keep my business afloat and turn things around (one last chance). My argument would be that I was making $20k+ a month last year and I thought if I borrowed for a fresh start I could make it happen again and pay back my debts. If I can't turn it around and have to file for CH7 would four months be long enough to give me decent odds of a dismissal, how about six?

The larger the charges the more likely a creditor might look at your case. The longer the time between new debt and filing, the better. 90 days is the absolute MINIMUM you can push it for any charges beyond a few hundred dollars. There are some exact numbers, info is on this forum. Be aware paying off one creditor in full and incurring debt to another is not really a great idea imo. Also paying the creditor in full may be considered preferential payment in lieu of all others and the Trustee may try to collect that payment from the creditor. Not an issue for you unless it's family and then it could be insider pref payment and things get a bit sticky

5. Being that the amounts with each issuer are so large but the charges are so old are the cc's likely to try to fight me or let it go bc they wouldn't have grounds to fight it?

I think this I answered in prior part of the post. In general I would say no they will not fight on old debt, even more so if you have made payments on them for some time

6. Since I hopefully have some time before the BK (if it has to happen), is there any company that you can do a sale leaseback type arrangement with a car, mine is presently worth over $10k and is paid in full. The goal would be to free up some capital and to get the equity down to the federal minimum of $3k or so.

Check you state exemption before assuming you have a 3k level exemption for your car. Bk is a federal event, but the states make up alot of the rules regarding assets. Other then that I have no opinion or other info to offer you. I'm sure you could maybe do a title loan, but that's again making up new debt just to protect an asset


I probably have more questions but its early in the AM and I've been reading posts on here for 6 hours straight and I can't think right anymore.

Thank you in advance for any help, it is much appreciated.


JS

In general if you have not had at least one free consult with a BK lawyer do so now. Get as many as you can Plan your BK if at all possible don't do something now that could jeopardize you down the road. Good Luck

[johnsmith11]

DebtEnder, thank you so much for your reply.

I haven't been sleeping much so it's given me lots of time to think of the best way to deal with this situation. As much as I want to borrow to restart my business that is probably a bad idea as it might jeopardize or really push back my potential filing. As hard as it is to admit the odds of me borrowing and earning enough to pay back the $150k+ in debt is pretty slim. Just as additional information the BT's I did are well over a year old and I have never missed a payment on any of them. I am also current on all of my personal CC's and student loans and have a credit score of 750+.

My biggest problem right now is that I'm in a bit of a jam as one of the personal loans needs to be paid off in the next couple weeks. My thought is if I had a third party pay them now (lucky to have people like that in my life) so the person with the personal loan can pay their bills then it wouldn't be preferential treatment as I wouldn't be making the payment. I could then deplete the remaining money in my accounts to pay the IRS (not borrowing any additional money) and then I could file for CH7. I presently have no real income as my business is dead in the water (actually huge losses YTD which will make my 6mo average income around -$50k/mo) so I don't presume I will have a problem qualifying for CH7. Once the CH7 goes through then I would begin a payment plan with the third party to pay back the debt. Does this sound like a better plan? Do you see any major issues with it? Thanks again for your help and to anyone else who might have some input on my situation.

-Edit: one other question that comes to mind. I have not lived in my current state for the last 2 years so the way I understand it I would be using the prior states exemptions or federal (both states are able to use the federal). Based on that am I still technically filing for bankruptcy in my present state or do I have to travel to my old state to proceed with the BK?

[willbfree]

If you wish to pay back some of the debts after BK is discharged you are free to do so

Let me give you the same advice our bk atty gave us. Don't EVER repay anyone any money for a debt that was included in your bk. Not a single penny. If you do then all your debt that was discharged in the bk is now eligible to be collected. No remorse post bk ever. What is in the past stays in the past or prepare to repay the entire amount.

[lrprn]

Let me give you the same advice our bk atty gave us. Don't EVER repay anyone any money for a debt that was included in your bk. Not a single penny. If you do then all your debt that was discharged in the bk is now eligible to be collected.

Willbfree, you misunderstood your lawyer - this is absolutely not true.

A filer can pay back anyone they wish after their bankruptcy case is closed. Paying back one account after closing DOES NOTactivate the other debts. All debts listed in your bk remain discharged in full.

[willbfree]

Sorry if I misunderstood the atty. I'll recheck this with her at the next meeting.

[ready2puke]

To the OP why would have have someone you know pay your debt and then go BK..? Why not just get all the debt BK'd. Your friend or family member would be SOL and you would have to pay them back. If your going to do it just do it with all your debt. I know it feels uncomfortable, I felt the same way. That too shall pass....

[johnsmith11]

To the OP why would have have someone you know pay your debt and then go BK..? Why not just get all the debt BK'd. Your friend or family member would be SOL and you would have to pay them back. If your going to do it just do it with all your debt. I know it feels uncomfortable, I felt the same way. That too shall pass....

I know that sounds like the proper thing to do but I would rather owe my family. I borrowed from two people who now after losing their jobs can't afford to pay their bills without this money. I will not allow my bk to cause two additional bk's to people I care for and respect. Paying back the debt to family will be a good way to get back on track and would make me feel much better about the entire situation. I guess this is a to each his own situation.

[ready2puke]

Oh I see sorry I must have missed it was to going your friends. You post is so long I get lost in all the words. I understand what your saying.. Its different BKing on cc's but personal friends would stink.

[johnsmith11]

Yeah sorry about the ridiculously long initial post, I wrote that at 4am. It's painful to think of coming out of ch7 with a large debt still but at least I will be covering my friends and only owing people who really care about me.

[DebtEnder]

If you can pay off the IRS without incurring new debt to do so ignoring the loan from friends atm then that sounds like a option to really consider.

What happens after your are discharged and closed is between you and any new creditors (family in your case). I would file BK to EVERYONE but in essence reaffirm your debt with your friends loans. I have some rather bad experience with loans from family so take this with a grain of salt

If you do trust them, and they trust you then have your family pay off your friend loans and once BK is done sign an agreement with your family to repay what they paid on your behalf if you want something in writing. Avoid any sort of paper or money trail from yourself to the friends before or during BK as this could be construed and insider pref payment, which is bad. Also any sort of new credit right before or DURING bk is well uhh bad

I hope this makes sense, if not well tough

[johnsmith11]

If you can pay off the IRS without incurring new debt to do so ignoring the loan from friends atm then that sounds like a option to really consider.

What happens after your are discharged and closed is between you and any new creditors (family in your case). I would file BK to EVERYONE but in essence reaffirm your debt with your friends loans. I have some rather bad experience with loans from family so take this with a grain of salt

If you do trust them, and they trust you then have your family pay off your friend loans and once BK is done sign an agreement with your family to repay what they paid on your behalf if you want something in writing. Avoid any sort of paper or money trail from yourself to the friends before or during BK as this could be construed and insider pref payment, which is bad. Also any sort of new credit right before or DURING bk is well uhh bad

I hope this makes sense, if not well tough

It does make sense so its not tough So based on what you see you think that paying the IRS with my remaining cash would work since I wouldn't be incurring additional debt? I guess it comes down to whether a trustee could/would go after the IRS as a preferential to try and pay unsecured credit cards. I would think they wouldn't but if anyone has a feel for this additional opinions are certainly welcome.

I'm now getting to the car issue. I am currently out of state and will be for the next 3 weeks so having a consult with a bk attorney is going to be a little tough. I could always do a phone call but I want to meet in person to get a real read for each attorney. I am going to try to go the independent appraisal route as the KBB retail numbers are just ridiculous in this economy. I know Ibroke was talking about this, has anyone had luck with it?

Also of some significant importance is what bills I can prepay, for instance: rent, car insurance, health insurance, utilities/phone, student loans? Are there any major ones I'm not thinking of that I should either use or ask a BK attorney about?

Ok its late and I'm writing too much again so I'll cut it off here. Thanks to everyone, you're all making my life just that little bit easier.

[DebtEnder]

It does make sense so its not tough So based on what you see you think that paying the IRS with my remaining cash would work since I wouldn't be incurring additional debt? I guess it comes down to whether a trustee could/would go after the IRS as a preferential to try and pay unsecured credit cards. I would think they wouldn't but if anyone has a feel for this additional opinions are certainly welcome.

So long as the pref payment is not made to family or in your case friends you have relationships beyond creditor/debtor then it is of little concern of yours. All it means is the trustee may want to collect that payment back to be redistributed to all creditors. This is between the creditor, the IRS here, and the the trustee. Two things when dealing with the IRS that make a trustee unlikely to bother. One it is the IRS good luck getting money from them and two the debt would not be discharged as it's less then 3 years old (tax debt over 3 years old since return CAN be discharged in ch7) TBH this would not concern the trustee much but ya get the point.

Regarding the car easiest way I could say is if there is a Carmax near you. if so go there they will give you a written estimate to buy the car from you at no cost. Trustee may want a private party value, depends on the trustee but this would be a good place to start. ANY sort of little fender bender, ding, corrosive bird poop mark, etc should be made painfully aware to the guy doing the appraisal.

And to the prepay bit once you confirm that you should be able to keep the car then yes prepay car, health insurance, stock up on food, medicine etc. Paying student loans goes back to the IRS bit so pay them as you can't reasonably get rid of them, but I would not make HUGE payments to them as in my case the trustee asked if in 90 days I paid any non-secured creditor more then $1k. If your student loans min payments would be more then 1k in 90 days don't worry about it I wouldn't. Other people may be able to chime in with other worthwhile stocking options. I unfortunately did not really get to pre-plan my bankruptcy Sounds like you do

And welcome to the forum insert normal this is not legal advice get a lawyer etc etc

[StartingOver08]

Regarding paying your friends - they are considered insiders and the lookback period is ONE YEAR. Do not pay friends leading up to your BK and the Trustee will go after those funds to have the money paid into the BK estate.

Regarding the IRS, do not make any BT's now. Just make payment arrangements with the IRS, they are not so bad to work with. BTW, if you have excess funds in your account (over the exemption amounts) the two best payments to make are 1) to your attorney to file and 2) to the IRS. The Trustee will not go after the IRS funds as they are considered priority debts.

The Carmax option apparently is accepted in some districts and not in others. But an independent vehicle appraisal is accepted. As to the sale/leaseback of your vehicle, be careful here. If the current value exceeds the exemptions and you encumber the vehicle to get it in your exemption amount - it may be considered a preferencial lien transfer and the Trustee may move to avoid the lien. Look here for info: http://www.lawdog.com/bkrcy/bkcp7f.htm

[johnsmith11]

Regarding paying your friends - they are considered insiders and the lookback period is ONE YEAR. Do not pay friends leading up to your BK and the Trustee will go after those funds to have the money paid into the BK estate.

Regarding the IRS, do not make any BT's now. Just make payment arrangements with the IRS, they are not so bad to work with. BTW, if you have excess funds in your account (over the exemption amounts) the two best payments to make are 1) to your attorney to file and 2) to the IRS. The Trustee will not go after the IRS funds as they are considered priority debts.

The Carmax option apparently is accepted in some districts and not in others. But an independent vehicle appraisal is accepted. As to the sale/leaseback of your vehicle, be careful here. If the current value exceeds the exemptions and you encumber the vehicle to get it in your exemption amount - it may be considered a preferencial lien transfer and the Trustee may move to avoid the lien. Look here for info: http://www.lawdog.com/bkrcy/bkcp7f.htm

Yeah I was hoping the friends would only be a 90 day lookback (as it seems the law is written) but it seems like the way the court treats it is friends=insiders.

I'm working with an IRS assistance firm who is negotiating an official number from them. That will tell me whether I have excess funds to work with or not after paying the IRS.

That's great info on the lien transfer, I will not be doing this so as to avoid muddying the water.

What it really comes down to for me is the decision to borrow from family or borrow more from unsecured lenders and try to a)get the biz cash flowing again and/or b) hold out for at least a year so I could file CH7 with less concern about them going after friends for the payments. I want to do the latter and fix this by myself but I'm afraid they would look back and say I was insolvent at the time (present) and I think the hole is too deep and I'd be better off just attacking the problem now rather than complicating it and risking paying my friends or the gov't twice.