non consumer debt & chapter 7

[hoffdaddy]

Help..... I am a physician with several businesses that have soaked us dry. We have put everything we have into them and are broke.I still generate substantial income from being a physician. We have 2.5 million in non consumer debt and 1.5 in consumer debt.We are aware thet the means test doesn't apply. An attorney advised that he didn't think we could file chapter 7 because our income is too high. Our income has dropped approx 50% over last 4 years and the businesses no longer are sustainable. We did a budget and although monthly income is a lot the basic expenses are also high. There is little or no discretionary income.We will re affirm on our home. All consumer debt payments are current but the businesses are about to go into default on lease and loan payments. Attorney said he doesn't think it will pass the smell test with the court.

Can we file 7?
Does income matter?

[MSbklawyer]

Most physicians require a chapter 11. Their income is too high for 7; their debt limits are too high for 13. That leaves 11. If you aren't trying to save the businesses, you can file chapter 11 and propose a liquidation plan -- which simplifies things a great deal. It's the functional equivalent of a chapter 7, without the debt limits. The means test doesn't apply if your debt is primarily non-consumer debts, so whether you file for 7 or 11 turns primarily on what you're trying to do with the businesses.

Are the businesses corporations or LLCs or sole proprietorships or otherwise organized? Do you have personal liability for the business debt? If there is no personal liability, just walking away from the businesses may be an option.

Now, about that pain I have in my lower back when it gets cold: I'm going to PM you my address and you can mail me a script for the good stuff.

[hoffdaddy]

all the businesses are LLC's and all have personal guarantees.

thanks for the info

[MSbklawyer]

all the businesses are LLC's and all have personal guarantees.

thanks for the info

And it's primarily non-consumer debt?

[hoffdaddy]

yes, it is clearly non consumer. If you add the personal guarantees non consumer debt is 3.5. The only consumer debt we have is our home and it has no equity.

[MSbklawyer]

yes, it is clearly non consumer. If you add the personal guarantees non consumer debt is 3.5. The only consumer debt we have is our home and it has no equity.

I don't see why 7 wouldn't work for you then. Any idea what your schedule I/J is going to look like? I'll defer to your attorney's advice about the smell test, but I'd suggest you get another opinion as well.

[hoffdaddy]

Thanks again.. If the statute says we can file 7 since it is non consumer can the judge still make us go 11

[HHM]

Keep in mind, your mortgage counts as consumer debt.

Don't worry, I recently reviewed a case with a lawyer, the Dr. (husband) made over $300,000 per year, but because it was a non-consumer case (due to investment real estate), the chapter 7 was discharged without incident.

[hoffdaddy]

yep, I had counted the house as consumer debt. Can you point me to any cases or case law that would allow us to show our judge any precedents.

Thank you so much for all the info. Hope you have a good New Year

[myid4u2c]

While it is true you do not need to take the means test you still have to submit a budget. The problem is if you have any money to pay your creditors you can not do a 7 even if it is a non-consumer case. If you are a high income earner it will be hard to prove you can not pay anything toward your creditors.
While I do not know your specific situation it would be hard to convince me you would not have any money left to pay your creditors if you are making a high income. You are not required to use the IRS standards, however if the amounts are way out of line, this is where the smell test comes in.

[hoffdaddy]

got it... over the last 4 years our income has dropped 50% and our budget shows little if any discretionary income.Income is still high but goes to house, kids ,school and all the basic stuff. No frills

[jribe]

you'll need to post your figures to have anyone give you a clear answer. Income from the last tax year, current income and your expenses - on the expenses it would be helpful to break them down.

then we can tell you what will fly (most likely). Just because "your budget" doesn't have any money -doesn't mean the trustee won't find any

Most will point out that BK requires a lifestyle change. You can't necessarily keep the same lifestyle that you had before BK.

But if you would like detailed guidance - we need more info. Remember no one will know who you are.
There are some people that are new and feel uncomfortable sharing- but we won't know who you are by giving more details on the financial stuff.

Also- please give your state. As you're probably aware, there's exemptions that vary..

good luck

[HHM]

While it is true you do not need to take the means test you still have to submit a budget. The problem is if you have any money to pay your creditors you can not do a 7 even if it is a non-consumer case. If you are a high income earner it will be hard to prove you can not pay anything toward your creditors.
While I do not know your specific situation it would be hard to convince me you would not have any money left to pay your creditors if you are making a high income. You are not required to use the IRS standards, however if the amounts are way out of line, this is where the smell test comes in.

You would think so, but that is actually not the case. The case I mentioned above, the couple showed $4000 per month disposable income (even after factoring in all the mortgage payments on the investment properties that were being surrendered), and there was no peep from the UST. Literally ALL the objections related to disposable income are based on section 707; and you can thank the poor legislative drafters for the credit card industry that made so that section 707 simply does not apply to non-consumer cases.

Granted, there is always some risk that if you have DMI in any chapter 7, you may get an objection, but in a non-consumer case, it is less of an issue.

[hoffdaddy]

Thanks HHM, I will post more info later.... this is the issue I am discussing with my attorney. A lot of the information I can find says Chapter 7 is a tool we should be able to use. However , many say the 350 to 400k in annual income will be an issue. I hope you are right and that Chapter 7 is available as you say. Can you point me to any cases I can show my attorney?

You guys are awesome !!!

[dakota112]

Hi Hoffdaddy: I feel your pain. I also am a physician for over 23 years in Primary Care so I kind of know what you are going through, however my situation is a little different. I was in private practice, high income earner, workin my butt off year after year, only to realize that it was all for nothing these past 5 years as I got deeper into debt , essentially I was borrowing money personally to pay for what my business couldn't bring in due to ever decreasing reimbursement and increasing costs of running the business. My unsecured debt is around 300K, and income now only around 4 K a month and schedule J is -5K due to as you know all the costs associated with maintaining a physicians license, maint of certification, malpractice ins., life ins., auto ins., health ins etc etc. I closed my practice last May (couldn't afford to keep it open with the paltry reimbursement from medicare and medicaid) and work basically as an independent contractor and have applied to go back to college to change careers and obtain an MBA with help from my family over the next 2 to 3 years so the TT cannot say I am gaming the system . I am unable to earn what I used to in primary care, I no longer enjoy it due to all the stress associated with it as well as malpractice fears so I am changing gears. No law says you have to work in a profession you initially chose the rest of your life. That being said, you would have to have a plan, or end up in a CH 13 as a slave to the system for 5 years which I think is unfair considering our leaders are looting our dollars for themselves and no one says a word. I file in a month CH 7 , my lawyer was very confident and has been in this for 25 years so I feel good about it and can't wait to start over. Its tough being a doctor today and you won't get much sympathy from folks who aren't physicians. It has become a thankless profession and for sure if you end up in primary care you will fail.