Had to close our business..considering Ch 7..have questions

[considering7]

I had a business that I had to close 2 months ago because we were losing money every month and were running out of savings to keep it alive. Wife and I have both found jobs to continue to support the normal family expenses, but the business we had still owes some pretty large bills. Our jobs cover our normal living expenses, but we don't have enough discretionary income to pay the business debts we owe. It would be a matter of a few months maybe a year tops before we would be behind on bills and creditors would start coming after us.

I think we can qualify for Ch7 based on having more non-consumer debt than consumer debt. Our incomes are above median. Hopefully we can keep the cars and the house since the equity in them is pretty nominal. I don't really have any assets left to go after outside of my exemptions.

I have consulted an atty and we are trying to gather all the data for her to come to a conclusion as to whether bankruptcy is right choice for me. Meanwhile I have a few questions for you on the board here.

Assuming we may end up filing chapter 7 in the next few weeks or so, I don't want to do anything to jeapordize things (read: make the court mad). I have some inventory left that I would like to sell to continue paying some what I call "necessary" bills..like the businesses' auto insurance, electric, and taxes, while I wind down the business and settle the bankruptcy and outstanding debts.

I've got a million questions about everything. I know I can't ask them call but here's a few maybe y'all have some insight about:

Are there any guidelines as to what you can and can't do before a bankruptcy? I want to sell my inventory and pay some of these "necessary" business expenses. One of my cars that I want to keep in the bankruptcy needs new tires. Will the courts care that I spent $800 on new tires right before bankruptcy? I found a buyer who will pay 25% below wholesale for my inventory. Will the courts care that I sold the inventory for less than I paid for it?

ANybody else have expereince here with non-consumer ch7's?

[frogger]

ANybody else have expereince here with non-consumer ch7's?

Perphaps you could say that....

What is your business stucture? Corporate or sole-p?

And, don't do anything yet.

[considering7]

Perphaps you could say that....

What is your business stucture? Corporate or sole-p?

And, don't do anything yet.

I think a sole-proprietorship. Wife and I setup an LLC when we opened the biz, but we personally guaranteed a large SBA loan to fund startup costs. And a few of the debts we owe outside of the SBA are personally guaranteed (like a vehicle loan). We also have some credit cards and owe some suppliers that we received products or services from.

I'm curious why you say not to do anything yet.

[frogger]

I think a sole-proprietorship. Wife and I setup an LLC when we opened the biz, but we personally guaranteed a large SBA loan to fund startup costs. And a few of the debts we owe outside of the SBA are personally guaranteed (like a vehicle loan). We also have some credit cards and owe some suppliers that we received products or services from.

I'm curious why you say not to do anything yet.

From what you say so far.........

You are an LLC, not a sole-proprietorship. There is a huge difference between the two when it comes to bk.

The LLC is an asset that belongs to you. This LLC has no exemptions.

Your SBA loan, your vehicle loans, etc., probably were to the LLC and personally guaranteed by you, as most are.

Here's some of your problems in a nutshell:

If you are like the rest of us, you probably ran most of your "expenses" thru the business. You let the business buy things, you depreciated them, and charged your expenses to them.

You have left a very good paper trail that is easy to document. When you file, you are going to provide all of that paper trail to the trustee, in the form of tax returns, depreciation schedule, profit/loss statements, etc.

What's on that depreciation schedule? Where is it? Where's the receipts for your sale? Did you sell it to any of your family or friends? Why did you sell it so cheap? What do you mean you sold a business asset to pay for your personal expenses?

You say you need new tires? If it's a company vehicle, then you are adding value to something that you're going to have to buy back from your bk estate.

The reason I stated not to do anything yet is that you don't want to do anything that is going to bite you on the a$$. When times are tough (like you are in now), you do things that could have unintended consequences later.

Look over your paper trail very carefully, see what are assets of your company, and what they are worth. If you liquidate those company assets, you need to be paying company bills. However, you stated that you closed the company, so what really needs to be paid?

Get outside your box and think like one of your debtors or your trustee. You have a fiduciary responsible as the owner of the company to run the company as a business, not your personal bank account.

Not trying to give you a hard time here, just want for you to think before you act. Appropriate legal/bk counsel would be prudent at this time.

[considering7]

From what you say so far.........

You are an LLC, not a sole-proprietorship. There is a huge difference between the two when it comes to bk.

The LLC is an asset that belongs to you. This LLC has no exemptions.

Yes, then I would be an LLC, not a sole-prop. I think I'm OK about the LLC not having any exemptions. The relatively small value of remaining inventory, tools, office furniture and vehicles that can be distributed by the courts to the creditors is to me, a small price to pay for the size of the discharge that I'm asking for. The only thing I wouldn't mind keeping out of the business is an SUV that has a $15k loan balance and a value of about $15k, thus little to no equity. It's titled in the LLC's name but listed on my personal credit report. I'm assuming the court will allow me to keep the car as long as I continue making payments. Otherwise I guess the court will force me to turn it over to the bank and I'll have to go buy another car at post-bankruptcy interest rates.

If you are like the rest of us, you probably ran most of your "expenses" thru the business. You let the business buy things, you depreciated them, and charged your expenses to them. You have left a very good paper trail that is easy to document. When you file, you are going to provide all of that paper trail to the trustee, in the form of tax returns, depreciation schedule, profit/loss statements, etc.

I was very good about having separate accounting for my personal household expenses vs my business expenses. The business had it's own accounting software package so every penny is accounted for. I kept a separate checking account, and credit cards that only had business expenses on them. For my personal, household expenses I again had a specific, separate checking and credit cards for this purposes. I never intermingled the business and my family's household expenses. I know many people run their family's household expenses through the business, but I never did.

What's on that depreciation schedule? Where is it? Where's the receipts for your sale? Did you sell it to any of your family or friends? Why did you sell it so cheap? What do you mean you sold a business asset to pay for your personal expenses?

The items on the depreciation schedule would be (I imagine) the SUV, commercial delivery truck, tools, office furniture. I've got very good records of it all in an accounting software package. I didn't mean to say that I sold a business asset to pay for a personal expense. I meant to say that I wanted to sell some inventory to a competitor who can use the inventory. Thus I would be recouping 75-90% of the wholesale price (what I paid for it). This would generate $5000 or so, that I could use to pay any business expenses that are still coming in. For example I need to keep the electric and heat on at my company's warehouse until such time that I can empty the warehouse of my vehicles, tools and inventory. Another business expense I would like to make is to keep up on the payments on the business's SUV (the SUV that I want to keep after bankruptcy). I may need to maintain general business insurance and auto insurance on the vehicles.

You say you need new tires? If it's a company vehicle, then you are adding value to something that you're going to have to buy back from your bk estate.

Yes, this is correct, it is a company vehicle. It's the company SUV that I would like to buy back from the bk estate.

The reason I stated not to do anything yet is that you don't want to do anything that is going to bite you on the a$$. When times are tough (like you are in now), you do things that could have unintended consequences later.

Let's say I go into bankruptcy with $20k in inventory and $5,000 in cash in the business checking account.

Look over your paper trail very carefully, see what are assets of your company, and what they are worth. If you liquidate those company assets, you need to be paying company bills. However, you stated that you closed the company, so what really needs to be paid?

What I meant when I said I closed the company is that I stopped selling to customers. I still have some bills that I owe until I can officially close the LLC with the State. Since we have to maintain our office/warehouse space for as long as I need to store the tools, inventory and vehicles that remain until the bankruptcy is over, I'll still have electric bills to pay, vehicle payments to make, etc. Since I intend on buying back the company SUV from the bk estate, I've read that I need to keep current on it's payments. THe only way to keep current on the payments is to sell the inventory to comapanies that do what I do in other states. I'm not looking to sell the inventory to end users, just to other companies that can use the inventory.

Get outside your box and think like one of your debtors or your trustee. You have a fiduciary responsible as the owner of the company to run the company as a business, not your personal bank account.

Right, I'm not looking to pay ANY personal bills whatsoever. Just want to generate enough cash to continue paying the expenses that the company is still incurring since I stopped selling product and will continue through bankruptcy (i.e. electric, company SUV payments, business insurance, etc. )

Not trying to give you a hard time here, just want for you to think before you act. Appropriate legal/bk counsel would be prudent at this time.

I am working with a lawyer now, just looking to this board for other opinions/experiences to supplement what my lawyer is telling me and give me food for thought to make sure my lawyer is covering all the bases for me.

THANK YOU so much for the help and advice.

[frogger]

How soon are you looking to file?

[considering7]

Barring any need to delay filing, I think I want to file as soon as my lawyer can get the petition ready, which hopefully by the end of January. The reaon I want to file sooner rather than later so that I can start the 5 month clock and get free from this debt.

I think based on what you said I'm going to hold off on the tires. I'd hate for a few hundred dollar expense to jeapordize my qualification for Chapter 7 and cause me to get put into Ch 13.

[tcreegan]

Hi considering7,

Your follow-up posts sure make the situation look much, much better. Kudos on keeping the business and personal separate!

...no help here, unfortunately, just encouraging words....and curious, what is the "5 month clock"?

Tom in Colo

[considering7]

The 5 month clock....my lawyer said that chapter 7 takes 4-5 months on average once I file. I guess I was just thinking about the end of the 5 months and the "clock" not starting until I file.

Thanks for the encouraging words.

[tcreegan]

.....ah...that makes sense, hope your clock ticks along smoothly with no alarms...

Tom in Colo

[BN1964]

You have a situation very similar to mine. Please follow up and let us know how things go!