your feedback appreciated

[CJD]

Here is my situation. My husband and I had a decent living in Maryland with no debt. We purchased a franchise in NY 2 years ago and moved here in NY. Our house in Maryland is being rented out and we are renting our home in NY.

When we started our business 2 years ago, we had HELOC of $100,000. We used $80,000 so far to finance our business. We have SBA loan of $200,000(not late on payment so far), credit card almost maxed out for $20,000, unpaid franchise fee and inventory of $100,000 and other bills of $5000, unpaid lease of $45,000 or so.

My questions:

1. My attorney advised that after seeing her, I am not supposed to cash my leftover HELOC. But, after filing Chap 7, how am I going to survive without a job or home to move into? So, I wanted to get leftover $20,000 for that. Would this become a problem? We do not know when to file, but we will not last long. Our landlord is running out of his patience.

2. After filing, we will lose our house, our business (value about $200,000). We will have no jobs. We will have to move out of our current home and move back to Maryland or some other state other than NY (so expensive to live and taxes kill you). This means that we need moving $$. After most of $$ taken, how am I going to do that? Tell me your experience, please.

I understand that if you only have CC debts, nothing will be taken. But, if you have loan with personal gurantee, you lose so much. How did you get by??

I would appreciate your insights. Thanks.

[newbie2]

Here is my situation. My husband and I had a decent living in Maryland with no debt. We purchased a franchise in NY 2 years ago and moved here in NY. Our house in Maryland is being rented out and we are renting our home in NY.

When we started our business 2 years ago, we had HELOC of $100,000. We used $80,000 so far to finance our business. We have SBA loan of $200,000(not late on payment so far), credit card almost maxed out for $20,000, unpaid franchise fee and inventory of $100,000 and other bills of $5000, unpaid lease of $45,000 or so.

My questions:

1. My attorney advised that after seeing her, I am not supposed to cash my leftover HELOC. But, after filing Chap 7, how am I going to survive without a job or home to move into? So, I wanted to get leftover $20,000 for that. Would this become a problem? We do not know when to file, but we will not last long. Our landlord is running out of his patience.

2. After filing, we will lose our house, our business (value about $200,000). We will have no jobs. We will have to move out of our current home and move back to Maryland or some other state other than NY (so expensive to live and taxes kill you). This means that we need moving $$. After most of $$ taken, how am I going to do that? Tell me your experience, please.

I understand that if you only have CC debts, nothing will be taken. But, if you have loan with personal gurantee, you lose so much. How did you get by??

I would appreciate your insights. Thanks.

Listen to the attorney. What you are proposing to do would be considered bk fraud. (Your creditor could, and probably would, file an adversary proceeding asking that the $20,000 not be discharged.)

You talked to an attorney for a reason, for legal advice on how to proceed. To do what you propose to do is inviting big problems.

I understand that you are broke, but you have to find a way to live post bankruptcy also, so please start now to think about your post bk finances and how you will live.

[CJD]

Thanks

newbie2: You are right. I knew that I could not draw $$ from HELOC any more... but just wanted to double-check.

I have 2 personal credit cards with no balance. Would it be beneficial to keep it that way? Or, is it okay to use it for grocery, day care expense, etc, and include the balance in the filing??

After filing Chap 7, would I lose both cards? I always paid in full to those cards for over 10 years.

[ccsjoe]

Hi CJD,

You will likely lose both and any other cards post filing. Very few cards survive bk, even with no balance and perfect history.

You should not be using any form of credit if you are planning to file within the next 90 days or so. The line of questioning you have posed thus far, however, compels me to ask if you are able to survive without credit, on a cash basis only? If you are not, then bk is not going to solve your problems. You may want to take a hard, objective, no-frills no-nonsense look at your budget please.

newbie2 is absolutely correct in not using the HELOC. Apply same line of reasoning to other credit.

[backtoschool]

I agree with all posters above. No credit should be used after you talk to a bankruptcy attorney and/or 90 days or less before filing. You are legally insolvent up to 90 days before filing. If you use the cards or any other credit it will be considered fraudulent and the creditors can file an AP to exclude the debt from discharge. This includes your zero balance credit cards, which will be closed as soon as the bankruptcy hits your credit reports most likely.

Living without relying on credit is an imperative pre-bk step. If you do not have the money to live without relying on credit, then bankruptcy is not going to solve your financial problems.

[CJD]

Thanks for all your response. In my case, it is my business that put me in this mess. I will have no option but to file. I am trying to figure out how we will live.

[newbie2]

CJD, don't file until you have figured out how you will live without credit and have begun to do so. There is no rush to file from what you have stated, and until you get jobs and have an income you're going to continue to be tempted to put your daily living expenses on credit. Get the income flowing again, at least enough to pay basic living needs, then file your bk petition.

[backtoschool]

Thanks for all your response. In my case, it is my business that put me in this mess. I will have no option but to file. I am trying to figure out how we will live.

You cannot use the cards, your HELOC, or any other credit to live. This will subject the debt to being non-dischargable, and may even cause your bk to be dismissed for bad faith. It is important that you have a way of supporting yourselves without credit before you file. And no credit should be used 90 days before filing or even longer.

[CJD]

Thanks for your response. I really appreciate all your insights.

I have been paying my inventry expense on credit card for a long time. Unless I do that, the inventory will not be released given the fact that I owe them a lot. They demand a payment right away upon ordering. I pay my credit card company right away for more than that amount so that it will not reach my credit limit. If I can not use my credit card for 90 days, my business will not survive that long.

[backtoschool]

Thanks for your response. I really appreciate all your insights.

I have been paying my inventry expense on credit card for a long time. Unless I do that, the inventory will not be released given the fact that I owe them a lot. They demand a payment right away upon ordering. I pay my credit card company right away for more than that amount so that it will not reach my credit limit. If I can not use my credit card for 90 days, my business will not survive that long.

Then you cannot file. All charges up to 90 days before filing, are subject to being non-dischargable for fraud if the creditor files an ap, which they will since they will be guaranteed to win. Filing bk, while expecting to live and run your business on credit cards is not a long term solution. You cannot expect to run up bills right up to filing and bk on those bills. That will be seen as fraud and there will be a good chance your bk will be dismissed worst case, or the charges will be non dischargeable best case.

[ccsjoe]

Unless you are willing to shut down the company, then you are currently unable to file. Let me ask this, how is the ownership of the company and do you have employees?

[backtoschool]

Thanks for all your response. In my case, it is my business that put me in this mess. I will have no option but to file. I am trying to figure out how we will live.

I don't want to sound too harsh, but I think that you are not seeing the future and present implications of filing bk. If you file bk there will be no credit cards. They will all most likely be closed. You also will have to live on a cash only basis for a long time. The initial rebuilding cards that you will get post bk, will be very small limits and will not be the type of cards that you can put inventory on. You will have to pay for your inventory in cash equivalents after your bk. All of your living expenses will also have to be paid for with cash equivalents. It is not realistic to expect to live on credit right up to filing bk or to live on credit post bk. That is just a problem waiting to happen.

The best step at this point is to figure out how you can live on cash without needing cards. This has to be figured out before you file. Once you have a budget you can live within, then you can figure out the best time to file. Any charges made on cards will have to be a minimum of 90 days before you file however.

[CJD]

I appreciate all your response. I did not know that I was not supposed to use the card for 90 days before filing. I will have to talk to my attorney on that.

I do understand the implications of filing bk. I am trying to figure out what we will do after filing.

Thanks for all your honest advice and insights to me. They are very helpful.

[CJD]

All your response led me to ask another question here. Do I need to shut down the operation first and then file bk? But, this means that we will have a job at the time of filing. I was told that we should not be earning more than our living expense. Otherwise, trustee will take it from us. Any ideas and advise are greatly appreciated.

[AngelinaCatHub]

I have pondered your situation and all the responses, which are very good.

Without going into some sort of Fraud, and I wish to be corrected by my peers if wrong (please), I would work out the paid inventory, if your business is a corporation or LLC, and file BK for the business.

You have a paid for house in another state. Jobs are almost non existent. I'm speaking for myself right now, there is no debtor's prison. Leave for your home state, sell your house to your renter for what you can get. Purchase a paid for camper that you could get a start in, some cheap FL or TX land that you could park a camper on (watch codes) and sign a domicile affidavit (it usually takes six months to achieve). Do what you are able to do to get living money if you have not made enough on the house sale.

Make sure you take nothing that is not yours, out of the business. Notify all that you are insolvent and cannot pay them; you WILL be sued. Attempt to live out six months without Judgment action, and file bk in FL or TX as they cannot take your home in those "Homestead" states.

This is a fine line of skipping and I do not approve of this action, but you have not filed yet, and lived six months without credit. Use your own asset of the house. It is all you have. A Judgment can take it, and bk can take it. Use your own money for a new start. Until and as long as you haven't filed, you are free to do what you wish, if you do not defraud anyone (besides your inability to pay). Make no new bills or commitments. Live out your stock and use that pittance to attempt to bail out. If you have employees, MAKE SURE they are all paid in full and make sure you pay their taxes. Do nothing that can be construed as illegal.

Now understand, I do not approve, but I am thinking what I would be forced to do in your situation. You are running 90 miles an hour down a dead end street and will soon meet the end.

Any others, pro or con regarding this post, please chime in, I won't be offended. 'Hub