Self Employed - wondering if chapter 7 is right for us

[amberk]

Hi,
First post.

I am looking at the possibility of filing either 7 or 13. I just don't know.

I am self-employed with my wife helping me, and we have 4 kids under the age of 11. (two are toddlers...2 and 3).

We no longer (it seems) to be able to continue to pay our bills and we ARE willing to lose the house (maybe 10k equity?) and both of our vehicles (maybe 10k equity, total on both).

In other words, we have nothing we really 'want to keep'.

We are pretty close to the median, but with the economy not doing well, it keeps going down. Our income varies GREATLY month to month.

If we file for chapter 7 (or 13), it is my understanding that the Trustee will 'shut us down'. In other words, we cannot incur any more debt, and we are out of inventory.

The business has no real assets, because they are custom made products. I have less than $1500.00 in tools.

I just want a 'new start', and I (AND my wife) don't mind living in a trailer if THAT is what it takes.

To head off some questions back to me:
1. We cannot 'sell' the business. The business relies solely on my expertise.
2. If we get 'shut down' we will have no income. Not even enough to pay for a trailer rental.
3. Getting a new job would not pay enough for our house and cars, so we are willing to lose those.
4. We owe a LOT 10k+ in taxes...which we don't have. (I know that THAT debt is not discharged.)
5. We owe over 100k on our credit cards
6. We owe our suppliers for our business around 50k
7. We have cut our grocery/food/clothing/ etc. to the bone. We are living on about 1/2 of the IRS standards, right now.

Last month was one of the worst months in sales we have had in years.

I should note that we get a small amount of income from web related stuff, but it won't pay even the food for us.

I keep hearing on here that 'self-employed' people get extra scrutiny...ok...no problem. (Perhaps?)
They can look over my checking account and see what we spent money on. We maintain two checking accounts. One for 'business income', and one for personal.

I just don't know what to do! (YES, we have prayed about it!)

Any ideas?

[tcreegan]

Hi amberk,

No experience with running a business through a BK, but I wanted to let you know that some taxes can be discharged.

Good luck with this, hopefully someone more knowledgeable will help you out....

Tom in Colo

[Anon]

I just went through this very thing. My business continues and I lost nothing. Seriously, Get an attorney who has dealt with this situation before. I also owed taxes, have a home, cars, inventory and came out fine. Good luck to you.

[keepmine]

While being self employed and owning a small business means you no longer have a routine run of the mill bk-espically with 6 figure cc debt it doesn't mean it's a lost cause.
Definitely see a lawyer or 2 or 3.
Just a few general thoughts-if a trustee can't liquidate a business, they'll abandon the asset. Sounds like that's where you are. The business has no value unless you are working it.
Secondly, don't just abandon equity. If possible, sell the cars and the house and use that money for living expenses and legal fees before you file. Deposits and utility hookups on a rental would be an acceptable use of the proceeds. Just don't sell to family or friends to avoid an insider problem.

[tobee43]

those that i knew had a business had to file for both the business and another bk filing for themselves as individuals....however, they were sub-chapter s corps...or llc.

if your a sole prop....they might be able to work it into one bk.

how did you file your taxes will be the most important criteria for how you should proceed. if you have been claiming a loss on the business for the past few years you should be good to go...or if you don't show a loss that way, but can prove sales or orders have gone down the tubes that's another way.

did you sign any loans for your business using your home as collateral? etc.

you may need an atty for this situation as opposed to attempting it pro se.

[backtoschool]

You will have a business chapter 7 if over 50% of the credit debt you are trying to discharge is business debt. To discharge the house and cars you will have to most likely file a personal chapter 7 too. I agree with keepmine that you should sell the cars and whatever else you can and live on the money for a couple of months while you prepare to file.

The key to being self-employed is to have really good receipts and records. The trustee cannot wring water out of stone, and if you are not making money, that will be reflected in your records and your receipts. The US trustee will most likely be involved due to the self-employment angle and the large amount of credit card debt, but again, if you have receipts and records and the expenses were not for luxuries, you will make it through.

If your taxes are old taxes they may be dischargeable. If they are from the last several years, they will not be dischargeable.

This will be a complicated case and you should not try to do this with out an attorney in my opinion, preferably one that handles business chapter 7 filings.

[amberk]

No experience with running a business through a BK, but I wanted to let you know that some taxes can be discharged.

These are Federal taxes from 2009, so they cannot be discharged (at least that is my understanding).

[ccsjoe]

Correct, I am also dealing with federal and state 2009 taxes and know those can not be discharged. Other than that there is not much I can contribute here as I don't know about business BK.

[amberk]

I just went through this very thing. My business continues and I lost nothing. Seriously, Get an attorney who has dealt with this situation before. I also owed taxes, have a home, cars, inventory and came out fine. Good luck to you.

Thank you!

I am thankful for those of you posting your own experience.

I HOPE (and PRAY) for enough (more) income so we DON'T have to file anything.

[amberk]

Secondly, don't just abandon equity. If possible, sell the cars and the house and use that money for living expenses and legal fees before you file.

Understood, Thank you!

[amberk]

those that i knew had a business had to file for both the business and another bk filing for themselves as individuals....however, they were sub-chapter s corps...or llc.

if your a sole prop....they might be able to work it into one bk.

Yes, I am a sole prop. I should have stated this in the opening post.

Also, I singed no 'loans' for the business.

And, 'no', I am not looking to do this 'pro se'.

I am hoping and praying that we don't have to do it at all.

[tobee43]

Yes, I am a sole prop. I should have stated this in the opening post.

Also, I singed no 'loans' for the business.

And, 'no', I am not looking to do this 'pro se'.

I am hoping and praying that we don't have to do it at all.

sorry for the late reply....but what backtoschool said is usually the rule of thumb if

You will have a business chapter 7 if over 50% of the credit debt you are trying to discharge is business debt. To discharge the house and cars you will have to most likely file a personal chapter 7 too. I agree with keepmine that you should sell the cars and whatever else you can and live on the money for a couple of months while you prepare to file.

i do know someone that taxes were in fact discharged....it was for employee wage tax...why, i have no clue.

best of luck...i'm certain it will all work out for you!