Business Debtor and Consumer Mortgage

[signal]

I am looking to file ch7. I thought I would be able to pass the means test, but now I think there may be an issue.

I make $108k/yr (gross)
Business Debt is $70k
Consumer Debt (without mortgage) is $69k
Consumer Debt (with mortgage) is $428k

My house is only worth $185k, so massively upside down there due to real estate crash.

I did not realize your personal mortgage is factored in to consumer debt. So now it looks like my business debt is much less than 50%.

Is there any fix for this? Do I have to foreclose first, and then file ch7? If I do that would that work, or do they take the amount you did not pay on the foreclosure and count it as consumer debt as well?

I will be seeing another attorney. I paid $100 for a consultation with a top bankruptcy lawyer, and he looked at my worksheet and said ch7 would not be a problem due to the amount of business debt. However I have been reading this forum, and I am getting a different feeling. So I will be getting a 2nd opinion.

I panic at the mess I am in. I worry they will take any disposable income I have and make me put every dime of it for 60 months into the debt on a ch13. I want a fresh start, I want to shed this, so I can live. The last 4 years has not been a cakewalk, every day is stressing with nerves and anxiety as I watch my business, life savings, and finances crush in this economy.

Any advise? Please help.

Signal

[AngelinaCat]

Hi Signal: Welcome to the forum.

First of all, a whak-wahk at you for paying $100.00 good dollars for a consultation with an attorney. There are many out there--not all--that will offer 30+ minutes for free. The initial visit, I mean. If you retain that person, then you start discussing payment plans.

Next, we need to know what state you are in, and particulars about the business, so that our members can render reasonalby informed opinions about your situation.

Above ALL: Do NOT panic. You will survive. Good luck.~~

[signal]

Angelina,

I am in Florida. I paid the $100 because I wanted to see this lawyer, because he came very well recommended, he is suppose to be a great bankruptcy lawyer. I will not pay for another consultation but I will get one.

The business my wife and I own, is her primary job. She has paid herself nothing for the past year, and virtually nothing the year before that. At one time the business was thriving (2000-2004), started to decline in 2005. 2007 had $55k in losses (net) and 2008 $11k in losses. The business buys and sells used equipment, like technology equipment that is coming off lease. The business buys it, and liquidates it on the secondary market.

This is her job (the business). She has had no employees for 3 years, she had to lay them off. She tried to hire someone for 6 weeks to revive the business (help her and try to get business moving), and has had to let that person go. I do not work i the business, I have a salary job working for a company as a manager, and make $108k.

The business is an LLC, everything is personally guaranteed by myself and my wife. All of the debt in the business ($70k) is unsecured debt. The business has no real inventory at this time, maybe $5k tops, and she continues to try to sell this inventory (thats what the business does) and make money to pay rent, creditors, etc. All credit is now maxed, cash in the business is $0, and inventory is very low ($5k tops, and not stuff that seems to be selling).

Personal debt is maybe $35k in CC's, and 1 $26k car, 1 $28k car and a $370k house.

I have not filed for bk or foreclosed, in fact I am not behind yet, but I cant rob peter to pay paul much longer, its caught up with me and accounts are going to start going late.

Signal

[HHM]

Mortgages are calculated as consumer debt, no exceptions. So, if your mortgage + other consumer debt exceeds your business debt, then you are a consumer chapter 7 and must pass the means tests. Sorry.

Even if you foreclose, the deficiency on the mortgage will likely exceed your business debt, thus, you will still be a consumer case and need to pass the means test.

[signal]

HHM, thanks for the info. What if I go out and buy a very small $50k apartment, switch my primary residence to this apartment (And my homestead). Now my huge mortgage is an investment property and counts as business debt right? If that's the case maybe that is what I need to do. Have you ever heard of this working?

Signal

[DebtEnder]

I think the issue there would be the debt was incurred as consumer debt. And from the sounds of it even if you did sell the house the remainder of the balance would still tip you over to the more consumer then business debt side.

Sorry but it does not look that good for you. Best thing you can do is try the means test and see if maybe you can round up enough expenses to still do a chap 7. Link is follows.

http://www.johnfire.com/meanstest/wizard.php

Good luck

[HHM]

DebtEnder is correct, it is the original intent of the debt that determines if it is consumer. So, if you took out the mortgage on your current house as "primary residence", there is no way to un-ring that bell. Even if you moved out of the house and rented it out for 10 years, it is STILL consumer debt because of the original nature of the loan.

In your situation, a chapter 13 is not a bad option. Your debt load is too high for your income; your combined unsecured debt, (not counting a mortgage deficiency) is $139,000. There is NO WAY you are paying that back on your own, so you need TO DO something. Get on a 5 year plan and get yourself out of debt. There is NO OTHER option that will get you out of debt quicker. Unless you have about $60,000 cash sitting around to settle, but debt settlement won't solve the mortgage issue and debt settlement is often worse in the long run than a BK. Your most comprehensive solution is a chapter 13 bankruptcy. (Apparently you don't/won't qualify for a 7). Don't get hung up on "wanting" a 7 or nothing. You need to do what you are able to do to resolve this.