Personal loans to business prior to filing 7

[azballer]

My wife and I are planning on filing for Ch 7 in October and have come across a dilemma. My wife has an LLC that is not being included in the 7. She is opening a retail location for her business this month and company funds are kind of tight for all of the expenses involved. We have around $8k in cash that we need to "spend down" to exemption levels before we file--she cashed her last few paychecks to keep them out of the bank.

Can we make a personal loan to the business for around $4k this month if loan documents are drawn up and signed and the cash is deposited into the LLC checking account? I am guessing the trustee would frown upon this as it looks like we are hiding money in the LLC. Is there any way to accomplish this ethically?

Thank you in advance for the advice.

[frogger]

You may not be including the LLC, but the trustee is going to include it as an asset.

Before you do ANYTHING, you need to consult with a good business bk attorney.

[azballer]

You may not be including the LLC, but the trustee is going to include it as an asset.

Before you do ANYTHING, you need to consult with a good business bk attorney.

Interesting...I spoke with a BK attorney friend of mine and she said that since the LLC had a Tax ID number, it was a separate legal entity and its assets would not be touched by the Trustee. Bad advice????

[blockhead]

Interesting...I spoke with a BK attorney friend of mine and she said that since the LLC had a Tax ID number, it was a separate legal entity and its assets would not be touched by the Trustee. Bad advice????

Perhaps. My C-corps had separate tax ids and my shares were included. With an LLC it is no different except it's your percentage ownership that becomes the property of the BK estate. Of course the Ch7 trustee might abandon it, depending on the liquidity of the assets and the structure.

Anything you own that is not exempted is included.

[despritfreya]

In response to:

"I spoke with a BK attorney friend of mine and she said that since the LLC had a Tax ID number, it was a separate legal entity and its assets would not be touched by the Trustee."

She is right AND she is wrong. The assets of the LLC are not part of the personal bk BUT your membership interest is. Does the membership have value? Probably not but read below.

In response to

"Can we make a personal loan to the business for around $4k this month if loan documents are drawn up and signed and the cash is deposited into the LLC checking account? I am guessing the trustee would frown upon this as it looks like we are hiding money"

Your gut reaction is correct. Bad idea.

1. The transfer of cash to the entity will have to be disclosed in the SOFA, question 10.
2. The loan to the entity will have to be listed as a receivable in Schedule B as an asset of your personal bk.
3. Since there was no "consideration" for the transfer, the Trustee can set is aside - he will go after you for the recovery of the $$ since the entity has no $$.

[azballer]

Thanks for the replies guys.

The issue we have with our LLC is that my wife and I are 50/50 owners and we are both filing. This will give the trustee 100% control of the company. The LLC has zero liabilities and about $15k in inventory (mostly stuffed animals and baby gifts that my wife sells online). We built the business slowly--reinvesting everything we made without the use of debt. I doubt the trustee is going to want to sell the assets , but is there a good chance he will make us buy them back if we cannot exempt them?

Thank you...

[frogger]

Get you a good bk lawyer, and yes, you can most likely buy it back at a greatly reduced price compared to what you think it's worth.

The trustee wants the $$$$$$$, not your LLC.

In todays economy, any buyer is a good buyer. Also, you can probably get 6 months to pay for it, with no interest.

[azballer]

Thank you frogger...