Lots of Chapter 7 Questions!

[honeybee]

I have many questions related to chapter 7. I am meeting with a BK attorney next week but am trying to research some things on my own….

First I own a business (sole member LLC) that will be closing in July. The business debt is about $70K in credit card debt. All in my own name (not my husband’s). I’m trying to figure out if I should be waiting until I close the business, liquidate all of the assets and then file bk? I have not stopped paying any credit cards yet. Should I stop soon?

Also need to understand how my husband will be affected. Our only main joint asset is land property we own. Should I be putting that in his name only now? Also personal property like furnishings etc. I’m assuming most of the small things will fall into the exempt category. I really want to make sure his personal property (car, musical equipment ) will be protected.

Another question is on wages. I am not currently drawing a salary from the business and have not for over a year. There may be a possibility of a job offer in the near future, but I am worried that being employed is going to complicate the bk? It certainly doesn’t make sense to take a job only to pay off the business debt. It probably wouldn’t be enough anyway, but am wondering how that would impact the process. Would it be a mistake to take a job during this process?

I know I will need to file, but just want to make sure I am doing the right things to prepare for it. Thanks for any help!

[btbeme]

OK, my thoughts, for what they are worth...

Wait to close and liquidate business? That depends. Any income from the liquidation will count toward your Means Test. How much potential income are we talking about? What are the assets worth, ballpark? In many cases, it makes sense to close and liquidate, since the Trustee will be interested in your business assets. If there are no assets (only income), you can postpone filing until any excess income is beyond the 6 month loopback and potentially avoid any issues. Need more info here...tell us about your income and the business, and we may be able to give you some help.

Paying credit cards - that depends. Once you stop, the calls start, and then the lawsuits (at least 4 months before they start, though). Your best bet is to stop paying about 4-6 months before filing, so as to move through any potential problems with charges, etc. In the meantime, don't make any big luxury purchases on credit or take out cash advances. The timeline on stopping payments will depend on when you will be ready to file, which will depend heavily on your first question above.

Moving assets into husband's name? NO! Most definitely NO! This would be considered fraud. Michigan is not a community property state, so his stuff is his stuff, yours is yours, and joint stuff is joint stuff. Tell us more about the land property - value, who is on deed, etc.

Personal property - his stuff has no bearing if you file by yourself. Most, if not all, of your "stuff" will likely be exempt or have no value to the Trustee. Do you have anything that you would place a high (say, $500 or more) value on if you were to sell it at a garage sale? Tell us a little more about YOUR stuff and any jointly owned property...cars, etc.

Wages and new job - one of the measures taken to qualify for a Ch 7 is a six month average of wages. In most cases, the lower the better, but that should not stop you from taking a reasonable wage-earning job. Are you familiar with the Means Test and the other qualifications of a Ch 7?

Overall, I think that your business situation has the most weight in the timeline, qualifications, and outcome of a potential Ch 7. Without a little more detail we would be hard pressed to make any solid recommendations, but you have taken a good first step in joining the forum and asking the questions.

Some general thoughts for you... First, I would strongly suggest that you speak with a handful of experienced BK attorneys. Their first consultation is typically a free one, and if you ask these questions (and go prepared) you will gain a LOT of good information. We can help round that out and be able to give you some advice that your attorney cannot sometimes give. We can also help you evaluate their advice as well as help you formulate the questions to ask and offer advice on how to do what they suggest that you do. Lots of experience here. Glad to help.

Second - time is your friend. It sounds like you are early in the decision process and not yet desperate. If so, that is good. It is best to enter BK with a plan, and a good plan sometimes takes a little time to execute. A good BK attorney can help you shape your filing so it has the least resistance. We can help that process.

Last - run your numbers through the Means Test, found on the Nolo website. That will help you understand some of the limitations (sounds like you will be OK, but we need more info). This will take a few minutes to do, and will require that you prepare some info regarding assets, income, debts, and so forth. Take the time to walk through that and let us know what the results are. Don't worry too much about being absolutely accurate at this point - just general numbers are fine. When you speak with an attorney, they will ask you for that info anyway, so this will be a helpful preparation for them as well.

So, a few more details, and let us help! Welcome to the forums!

[daylate]

Good points above. Here are a few more-

1) Download (or buy at a bookstore) the NOLO guide to Chapter 7. For what is costs 20-30 dollars it is worth every penny.

2) As to taking the job-if it pays too much it can disqualify you from a Chapter 7. You need to research the Schedules I & J and how if your excess income after filing is greater than a certain number (which I can't recall but is here on the forum somewhere or you can Google for it) then you either have to file a Chapter 13 or not file.

[honeybee]

Thank you so very much for taking the time to respond to my questions. I truly appreciate your help! Ok here is a bit more info…

Assets of the business are around $30-40K (fixtures, inventory, furniture, equipment). There will be no income from the business from now until I file. It’s not profitable and has not been since the beginning.

The land property is of the MOST concern. If this is impacted at all I will not be filing. I won’t lose this. My husband and I are both on the deed. There are no liens on it. The value is around $10K.

Personal property… not anything of high value. Just furniture, clothing, books, basic items. No one thing over $500 I don’t think. The only asset would be my car (in my name only) which has a blue book value of $4500. It’s a year 2000 and has 213K miles.

Wages- this potential job has just come up but I feel it is an opportunity I need to consider. Again, just worried on timeline of the 6 month lookback and filing. I guess that will all depend on the filing time. I am somewhat familiar with the Means Test. I had figured I met all the requirements but this new job part is throwing me off. I’m not sure I will qualify if I have wages, but again I don't see how it makes much sense to have every penny earned go to the business credit card debt.

Thank you for the advice on NOLO. Funny, I bought a NOLO book when I formed my LLC. I sure didn’t expect to be having to by the BK one so soon.

I do have a consult with attorney next week, but wanted to get some info on my own and sooner than later since this job may be something I have to decide on before then. I agree that having a plan is going to make this process easier.

Thank you again for your support! Any help you can give is appreciated!

[ValleYum]

honeybee - make sure you consider using the Federal Bankruptcy exemptions. You are able to use these or the Michigan state exemptions. If you are not trying to protect any (or much) equity in a home, there is a nice WildCard ($10,825) that you can use with the Federal that may help protect your portion of the land.

Michigan exemptions are here: http://www.legalconsumer.com/bankruptcy/laws/#Michigan

Federal are here: http://www.legalconsumer.com/bankruptcy/laws/#US

Good luck!!! Oh, and the NOLO BK book is available as in instant download for under $20. It is a PDF file that I kept on my desktop through our BK. It was invaluable.

[honeybee]

Thank you so much for that info! Not protecting any equity in the home. We owe more than it's worth and it may be going to foreclosure. The land is really the only concern.

I will download the NOLO right now. Thanks for the advice!

[btbeme]

As for the business assets... Your first goal in a Ch 7 is to be declared a "no Assets" case by the Trustee. Mostly, this is to keep the filing and discharge as simple as possible, with a minimum of time and effort. When you have assets that are not covered by exemption amounts (looks like you will be doing OK on your personal stuff if you us federal exemptions), the Trustee will evaluate whether the remainder is worth grabbing and selling in order to pay your debts.

Two things to consider here. First, the value of your business items should include any client portfolio, accounts receivable, and so forth, not just the hard equipment and inventory. Depending on the type of business those may have some value. Hard to say unless we know a little more, but be sure to discuss exactly the type of business, what you sell, what you have, etc to the attorney for an opinion. See below for more info.

Second thing to consider - if the business debts are more than half your overall debt, be sure to ask your attorney about a business Ch 7. He will likely bring it up if he thinks it is the prudent avenue to pursue. There are several well-documented cases here in the forums where you can get some good info. Let's cross that bridge when we get to it, however, for the sake of clarity. Just be aware that it exists, and ask about it.

Regarding business assets. Your inventory and hardware may not be worth what you think it is, simply because it is worth only what it can be sold for. The Trustee will take that into account when making a decision. The Trustee may decide that it isn't with the trouble (called "abandonment") and not touch it. The Trustee may feel some of it is worth grabbing, but not all of it. If the Trustee wants to grab it and sell it, you MIGHT get the first opportunity to buy it back from the Trustee. If not, it will generally get auctioned - and if the auction is popular, you may just sit back and watch the stuff fly out the door. If the auction draws no - or very low - bids, you might again have the opportunity to buy it back at a very low price, if you wish. Or, the Trustee might abandon more or all of the property after trying to auction. What really matters is what the stuff is and how well it would sell. Lots of example here in the forums.

As far as the land, car, etc - the federal exemptions you have will likely put you in pretty good shape. Raw land is hard to place a value on, so if the generally accepted value is pretty low, there is another owner involved, and exemptions would cover the value you own anyway, chances are the Trustee would abandon. Cars are easier to grab if not exempted, but there are plenty of ways to exempt a $4500 vehicle pretty easily. The rest of the stuff is probably of no interest.

Potential job - if you have had no real income in the last six months, then start a job that pays you $6000 a month and are there for 1 month before filing, your average monthly income for the 6 month lookback is $1000/mo. - well below median income. Use the Means Test to calculate how much you would have to earn to be above median income for 6 months. If you would be lower than median income, no problem. Above median income simply means that you and your attorney would have to shape your filing so you pass the Means Test. Again, time can work in your favor that way.

Have some great talks with attorneys and let us know what they say!

[honeybee]

Thank you again. You are so very helpful! I can’t tell you how much I appreciate this.

I wasn’t aware of the business chapter 7. Yes more than ½ of the debt is from this business so I will be sure to ask the attorney about this in case it applies.

My mind is spinning with all of this that it never even occurred to me that if I file shortly after accepting a job that the 6 month lookback wouldn’t be an issue. Another reason this forum is so helpful. It’s easy not to see the obvious I suppose.

Thank you again. I will give an update after I talk with some attorneys next week!

[nohoneymoney]

Thank you again. You are so very helpful! I can’t tell you how much I appreciate this.

I wasn’t aware of the business chapter 7. Yes more than ½ of the debt is from this business so I will be sure to ask the attorney about this in case it applies.

My mind is spinning with all of this that it never even occurred to me that if I file shortly after accepting a job that the 6 month lookback wouldn’t be an issue. Another reason this forum is so helpful. It’s easy not to see the obvious I suppose.

Thank you again. I will give an update after I talk with some attorneys next week!

If you can qualify for a non-consumer BK7, you will not have to pass the means test or have a minimum income. In addition, the presumption of abuse does not apply. Have a good list of your debts when you talk to attorneys to see if you qualify. To that end I would not liquidate the LLC until then. Best of luck and keep us posted.

[daylate]

Again make sure you understand the implications of a high paying job going forward. It will impact your filing as much, if not more, than the Means Test. For example,
you take a job paying 120,000. No income for last six months. Probably not going to impact (120000/12/6=1667month) Going forward making 10k a month could leave you with enough disposable income to be in a Chapter 13. Search the forum on this topic and make sure you understand. Good luck.