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Planning ahead, self employed with recievables

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    Planning ahead, self employed with recievables

    I am pre-planning for what I believe will be an inevitable BK7 filling. I have several questions that I hope some of you seasoned BK veterans will help me out with.
    First a brief overview of my situation. I am In So. Calif. and like most here my home is underwater by about 100k. I have a purchase money 1st with Citi bank for 107k and that I successfully modified about 1yr ago. I also have a 2nd mortgage with HSBC that was taken out 3 yrs ago to pay off a smaller purchas money second and to replace a roof and AC unit plus consolidate other debts. The balance on the 2nd is about 117k. Our home at the time of the 2nd was appraised for $330k but the Current Value is maybe 120k. Our other Debts are a 15k leased vehicle and about 12k in credit card debt plus about 4k in back taxes.
    We have been working with our second Mortgage HSBC for more than a year and were given a 6 mos temp hardship mod and when it expired we reapplied for a permanent mod they only offered us another 6 mos hardship so after the first good faith payment we quit paying because we could not afford what they gave us and more importantly because they refused to give us a true permanent loan mod. We are now 5 + mos late and get calls almost every other day and I just keep telling them we are only interested in negotiating an affordable permanent loan mod or settlement offer. I wont go into all the details but it has become pretty apparent that we are not going to get anywhere until they decide to charge off and than maybe we could settle with them but I doubt we could come up with even 10%. The good news I guess is that they are very unlikely to foreclose because there is nothing to get without a deficiency judgment and a BK7 would end that. We are current and happy with our first lender. We can get by paying all of our other bills as long as we dont pay the 2nd. Ok sorry for the long story but I think its important that we put all the important facts on the table.
    Now here is where it gets fuzzy to me, I am self employed my wife is permanently disabled and gets Social Security Disability plus a small disability pension form here last employer. My business is way off for the past 2+ years but still better than a bad job. After expenses Even with my wifes SS and disability income we fall under the means test as far as I can tell and even when I do the 2nd part of the means test we still seem to be well under the means test and qualify for a bk7. I am not interested in a BK13 unless its a last resort. I do not want to be in bandage for 5 yrs and the only reason to do it would be to try 2nd lean strip but We are real close to not quite making that anyways. My biggest concern is that I often have 5k or more in receivables and even though I file taxes on a cash bases it appears the trustee will consider them as assets. Since I have no home equity I will be filling under the system 2 plan where I get a $22,025.00 homestead exemption. I need to use most of that to exempt my paid for vehicles. I estimate I need about 18k in vehicle exemption and the state only allows $3425.00 so I would use a lot of the left over Homestead exemption there. I also have about 3k in bank accounts to run my business + our home account. So It gets real close to my max and I need some Ideas how to shield as much as possible without pissing off the trustee and triggering any objections. We are trying to stay in the home and ride thru the first and hoping to settle the second in time. Or worst case if they decide to try a foreclosure eliminate any future debt.

    Looking for any pointers of advise besides the usual go talk to a lawyer LOL.
    Dave

    #2
    What type of business structure is it? SP, LLC, S Corp?
    All information contained in this post is for informational and amusement purposes only.
    Bankruptcy is a process, not an event.......

    Comment


      #3
      Originally posted by frogger View Post
      What type of business structure is it? SP, LLC, S Corp?
      I am a sole proprietor.
      My income looks higher than normal right now because I have collected more in receivables than I have billed over the past 6 mos. I generally bill net 30 days but several of my customers are paying more like net 60 to 90 days. Its difficult to time a BK7 filling when I don't know what my receivables will be month to month unless I just shut down for a month or so and wait for them to get caught up. But then I am left with what to live on when I start back up until I get paid.
      Which brings up another question, IF we have excess cash or receivables at the time of the filing and owe back income taxes will the trustee just use it to pay the IRS first since they have priority. If that is the case It would not matter so much since we are mostly trying to protect our stuff that might if added to our receivables put us into an asset case?

      Comment


        #4
        Whats a guy got to do to get some feeback

        Maybe its me maybe my questions are not that interesting but I would have thought someone would have had some comments or feed back by now ?

        Comment


          #5
          I am in a very similar situation and waiting to hear back from attorney. When I do, I will post here what I find out.

          Comment


            #6
            Originally posted by WanabeFree View Post
            Maybe its me maybe my questions are not that interesting but I would have thought someone would have had some comments or feed back by now ?
            It's the whole paragraph you wrote without breaks in it. Very difficult to read. I tried reading it twice and still don't think I understand all of it, therefore, I can't comment or help.

            Try re-entering your first post and break it up in to paragrpaphs. That will help all of us tremendously and then we can help you.
            Filed Chapter 13 02/2006 - Confirmed 05/2006 - Discharged 09/2011
            I'm not an attorney. My replies are merely suggestions or observations, not legal advice. As always, consult with an attorney before making any decisions.

            Comment


              #7
              OP, if you have excess cash prior to your filing, pay the IRS before you file any amount you can not exempt. You are allowed to spend down excess cash on living expenses, the IRS and naturally your attorney's fees prior to filing.

              This will reduce your outstanding liability to the IRS during your BK. After your BK is discharged, you can make payment arrangements directly with the IRS for any taxes still due.

              Don't complicate matters by turning your case into an asset case if at all possible.
              You are in So Cal so you have very generous exemptions.

              And finally, yes, if you breakup your very long paragraphs and sentences into something a little smaller we can absorb it easier.
              Filed CH 7 9/30/2008
              Discharged Jan 5, 2009! Closed Jan 18, 2009

              I am not an attorney. None of my advice is legal advice in any way..

              Comment


                #8
                I agree my original post is long and hard to read but I can not seem to find anyway to edit it once it has been posted.

                My main questions were how receivables are treated in a BK7

                How to avoid turning my case into an asset case.

                Does the trustee Use non exempt cash or receivables first to pay off secured debts like IRS taxes before all other non secured debts.

                I am concerned mostly that I can not control how much I will have in receivables in the future unless I shut down my operation for 30 or more days to let them clear or I will end up forfeiting them anyways.

                How am I supposed to live in the short term if I give up all my cash and receivables if I give them up to protect my other personal things of value.

                Comment


                  #9
                  The edit feature only lasts a very limited time once you post (I don't remember how long exactly, but the mods will know).

                  Receivables that are due as of the date of filing belong to the Trustee. That is why you do want to 'time' your filing so the outstanding receiveables are at a low point. Any business generated after the filing date is yours to keep. Yes, its hard to time it, but you know the pattern of your receivables better than anyone else.

                  Think of your assets value in terms of liquidated value. What is the value based on a quick sale. That is how the Trustee will look at your assets. What you can not exempt the Trustee may want to fund the BK estate. I say 'may' because sometimes the actual value over the cost to liquidate is negligable. The first person that the Trustee will turn to is you to buy back your assets. Some Trustee's are very aggressive, others aren't.

                  The taxes are certainly a priority debt. They do come before payment of other unsecured debt. However, it is easier and quicker to be a no asset Ch 7 and if you know you have non-exempt cash, why not pay your IRS debt with non exempt cash prior to filing. You then are a no asset Ch 7. Now, if you are going to have assets over and above the non-exempt cash and become an Ch 7 asset case anyway, then it won't make a difference. The IRS doesn't collect from you during the course of the Ch 7 anyway.

                  Filing BK is all about choices. You have very generous exemptions in CA. If you can not protect both your personal items and the cash you need to remain in business, then you need to think about which is best for you to get back on your feet.

                  Remember, most people place entirely too much value on their assets. It is just stuff. It is not worth anywhere close to what we paid for it. Review your asset schedule, figure out realistic liquidation values (garage sale type values). If you are looking to exempt cash, then you need to probably give up more 'stuff'. When you go through this process, giving up stuff becomes much, much easier.
                  Filed CH 7 9/30/2008
                  Discharged Jan 5, 2009! Closed Jan 18, 2009

                  I am not an attorney. None of my advice is legal advice in any way..

                  Comment


                    #10
                    Thanks for the response,

                    I have another question as to how my wifes Social Security disability benefits will effect things too. She is on Permanent SSI disability and I know it does not count on the front end of the means test but yet gets added back into our DMI ratios. I think we will be OK based on my own online Means test calculations but its really confusing.

                    It is also hard to figure how they will figure our business income because I for tax purposes expense a lot of things like my personal health and life insurance through the business as well as most of my vehicle expenses so it at least for tax purposes It looks like I have very little profit. I also pay my self employment (quarterly taxes out of the business account. However since I am a sole proprietor these things are all personal expenses in the end. So I am a little confused on what is the proper way the BK trustee will want them disclosed.

                    Comment

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