Small Biz Failing, $150k+ in Unsecured Debt

[StartingOver08]

That sounds like a reasonable course of action, we business owners are inherently optimists - otherwise we would not ever want to own a business!

You have to look at the probability of actually being able to get out of your problem within a year without the assistance of the BK court. For me, I waited probably a year too late. Many people on this board do the same - don't go through all of your resources and then file. It is much more difficult to recover then.

I believe through unscientific means (SWAG method), that when you have a business and large debt and over median income the Trustee's get very interested in your case. I had the UST interested in mine, but was able to show with all the paperwork that I was truly CH 7 material. Had to document everything going back years. You may need to do that too - it is a strategy that seems to work. Ask your attorney.

When did you last pay your friends? Yes, they are considered insiders by the courts. You may want to seriously put a year between the last payment and the filing date - it will make your filing that much easier. As you can see, only you know the answer to these questions because the answers conflict. At least you are here to plan your BK to minimize any difficulty when you file.

Note: SWAG method = scientific wild a** guess!

[johnsmith11]

That sounds like a reasonable course of action, we business owners are inherently optimists - otherwise we would not ever want to own a business!

You have to look at the probability of actually being able to get out of your problem within a year without the assistance of the BK court. For me, I waited probably a year too late. Many people on this board do the same - don't go through all of your resources and then file. It is much more difficult to recover then.

I believe through unscientific means (SWAG method), that when you have a business and large debt and over median income the Trustee's get very interested in your case. I had the UST interested in mine, but was able to show with all the paperwork that I was truly CH 7 material. Had to document everything going back years. You may need to do that too - it is a strategy that seems to work. Ask your attorney.

When did you last pay your friends? Yes, they are considered insiders by the courts. You may want to seriously put a year between the last payment and the filing date - it will make your filing that much easier. As you can see, only you know the answer to these questions because the answers conflict. At least you are here to plan your BK to minimize any difficulty when you file.

Note: SWAG method = scientific wild a** guess!

Trying to avoid to many specifics (yep I'm a little paranoid of a creditor coming on here) but I'm an investor and I made 500% in 5 months last year. Unfortunately I lost everything this year (changed strategy, used way too much leverage based on confidence in prior results, so stupid) and I'm stuck with deciding to borrow and give it another shot (old strategy obviously) or just give in and go back to the working world with family debts. The reality is that if I did borrow additional funds I'd owe over $200k with ok interest rates (assume 10% on average) which would make it pretty damn tough to pay enough over min payments to make it work out.

I guess luckily I have not paid my friends back anything yet, it was going to be a lump sum payment plus interest at the end of the loan term.

As for the Trustee's interest I have a business and a large debt but using the 6mo BK calculation my income is a huge loss per month so hopefully that will take me of the radar screen.

I'm also wondering about contributing to my SEP-IRA. I had significant income in 08 and am thinking I could say that I contributed to reduce my tax burden and was trying to keep my business afloat. What is the typical look back on retirement acct contributions? How far can they look back if they want to dig?

[johnsmith11]

Also I'm wondering if/how much I can prepay in rent? Can I have a contract that says I have to pay up front? Would that pass mustard as a living necessity or would they say it was some sort of preferential payment?

[StartingOver08]

You can not prepay your rent. This is a preference payment that can be avoided by the Trustee. To read a very good recent case look at this link: http://www.id.uscourts.gov/decisions...Coble.Memo.pdf

As to the SEP/IRA, many retirement funds are excluded from the BK estate; HOWEVER if you have a SEP than that may be an exception to the exclusion.

An exception to this rule is retirement plans that have only one participant, such as single employee corporate plans, and some other plans originating in self employment. These plans may be property of the estate. They may be vulnerable to creditors unless subject to an exemption. Get good professional advice if this describes a significant asset of yours

To see the entire article, go here: http://www.moranlaw.net/retirement.htm

[johnsmith11]

You can not prepay your rent. This is a preference payment that can be avoided by the Trustee. To read a very good recent case look at this link: http://www.id.uscourts.gov/decisions...Coble.Memo.pdf

As to the SEP/IRA, many retirement funds are excluded from the BK estate; HOWEVER if you have a SEP than that may be an exception to the exclusion.

An exception to this rule is retirement plans that have only one participant, such as single employee corporate plans, and some other plans originating in self employment. These plans may be property of the estate. They may be vulnerable to creditors unless subject to an exemption. Get good professional advice if this describes a significant asset of yours

To see the entire article, go here: http://www.moranlaw.net/retirement.htm

Wow thanks for the link to the rent court case. That was very interesting to read. I would assume that paying your rent monthly wouldn't be a preferential payment (even though it would clearly exceed 600 over a few months) as you need a roof over your head, right?

I was nervous about my IRA but luckily the gov't passed a law in 05 i believe that makes all IRA's fall under the retirement plan exclusion. Now its just a matter of whether contributing to it now for 08 would be deemed some sort of bad transfer, I have to decide by Wednesday!

[StartingOver08]

If you have been contributing to it regularly (every year) I think you have a good case for keeping it in the SEP/IRA. But run it by your attorney anyway

[johnsmith11]

I made a large contribution in 2006 when my income was high but did not last year as I had low income getting my business prepared. I am eligible to contribute over $25k but obviously that would be asking for it. I'm thinking that I might move $5k over as it is significant but not in your face large. If they don't like it they can somehow take it back i guess but that wouldn't leave me much worse off than I am now.