Our Chapter 7 vs Chapter 13 delimma

[tshep9000]

We hired Legal Helpers here in California about a year ago to file for bankruptcy.
After our initial consultation with them, they recommended we file for Chapter 7.
We told them at that time that most of our income was derived from the small business we own,
and that our highest #1 priority was to be able to keep the business, whatever chapter
bankruptcy we ended up filing. They told us "don't worry about it you'll be fine, your business is
safe". WRONG ANSWER ! And guess what, that attorney quit sometime thereafter.
On the day of our hearing with the Chapter 7 Trustee, our Legal Helpers
attorney called us that very morning with an urgent message to fax over our list of accounts ( we own
a vending business ), and how much each one grosses for us, to his office. WTF ?! Did he just learn we owned
a business ?!?! How did that crucial piece if information get missed ???
The hearing went very badly. The Trustee was angry at the attorney for not doing his due diligence,
and angry at us as he thought we were hiding something. That attorney ended up getting fired the next day.
Sometime later, our new attorney ( #3 ) filed for a Chapter 13, which you can do, esp. if you own a business,
in order to keep your business but get on a payment plan with the Chapter 13 Trustee.
So far so good. Except, we never received the paperwork from the Chapter 13 Trustee with the payment terms
and schedule. He was on vacation or our of town for 3 weeks, apparently. The paperwork probably got overlooked as this office has a huge caseload. So next we get a call from our new attorney urging us to send in a check to the Trustee's office
right away as payment was already late ( ? ) So we got a cashier's check from our bank and sent it priority
mail. The 13 Trustee said he didn't receive it in the allotted time and has filed for a motion to dismiss our
case. Our attorney's have now requested a hearing in front of a judge to petition for remaining in Chapter 13.
If the judge's ruling goes against us, It then goes back to the Chapter 7 Trustee who wants to take our business assets.
We own and run a vending business, by the way, with various locations where we stock the machines with sodas, snacks, etc.
However, we don't own these accounts/locations as we have no formal agreement or contract with them, we are there only
by their permission. That is, we have no legal claim to these accounts. It begs the question as to how the Chapter 7
trustee could liquidate assets WE DON'T OWN OURSELVES !! Plus, the combined total of our equipment, truck, etc comes
under the "wildcard" amount which is a provision in a California Chapter 7 bankruptcy filing which the trustee can't touch.
So, we're not sure how he can "shut down our business" as has been threatened by him. Anyone know of a worst case
scenario here if we just walk away in case this gets returned to the Chapter 7 trustee ?
Finally, we may have to sue Legal Helpers ( what they were formally called, they've since had two buyouts ) for
putting us in the wrong bankruptcy chapter in the first place ! We made it abundantly clear from the very start our
business was our main source of income and that above all else we wanted to keep the business, whatever the filing.
As mentioned, the idiots said "not to worry let's go ahead and put you in a Chapter 7" !
We would sue them for whatever amount the Chapter 7 trustee is demanding, and if we win, pay off the trustee so we can get on with our lives. But as I'm not a lawyer I'm not sure how all that would play out.
Any advice anyone could offer here is GREATLY appreciated, especially from people and/or attorneys who have had
a similar experience.
Thanks !

[HHM]

You won't get anywhere suing the law firm, so probably should not focus on that. If necessary, I can get into it a little more later as to why but malpractice is very very very difficult to prove in the bankruptcy context (legal malpractice, in general, is very difficult to prove). Your post is a bit rambling and hard to follow. Please use the enter key to make paragraphs.

Not sure why your case would go back to chapter 7, that is not what would happen if the case is dismissed. If your chapter 13 is dismissed, it is "dismissed.". It doesn't go back to being a chapter 7. It may not be such a bad idea to let the case dismiss and start over from scratch (assuming that is what would happen).

To help clarify things, it would help if we knew (1) the value of the business assets in question, and (2) in a general way, what sort of business you have, and (3) again, in a general way, what business assets we are talking about. Is the business incorporated in some manner (e.g. and LLC, S-corp, etc). If so, is there any debt against the business?

[LadyInTheRed]

I don't think you fully understand what is going on in your case. You say the value of your business fits under the wildcard, but you had to file a Chap 13 to save it. If it is exempt, the trustee can't take it in a Chap 7 either. Perhaps it's the income generated from the business which disqualified you from a 7? Or maybe the trustee doesn't agree with the valuation. You need to understand why you are in a 13.

[tshep9000]

Hi,

Thanks for your reply. Sorry for my poor posting etiquette, I'll break it up into paragraphs next time.

In answer to the Chapter 13 being referred back to the Chapter 7 which we originally filed,
our Legal Helper attorneys tell us this "automatically" happens if the 13 Trustee dismisses our case
and the 7 Trustee wants the business assets (The 7 trustee wants to re-open our case ). I didn't think that was the case either. Does it make any difference
this is in California ?
As to our assets, our business is worth about $130K assuming we sold it for full value. That's based on the income we receive from our vending
accounts. Here's the caveat, however :
we don't own the accounts where our vending machines are located, it's only a verbal agreement we have with them.
In other words, we don't own those accounts ! Yes, we could sell them but the new vendor would have to get permission
from the location to take on the vending service there. That would put the sale in jeopardy as the location may not want
the vendor the location was sold to. That's why in most cases the new vendor doesn't divulge their identity and pretends
to be only another employee of the original vendor. A dirty business, I know, but that's often how it works in vending.
That's how we bought our accounts - we had to "sneak" in ( ! )

If the 7 trustee tried to take our assets and "shut the business down", we would of course inform the locations we were no longer
their vendor. As far as the 7 trustee trying to sell those locations, good luck ! He would be soliciting for those accounts
just like any other vendor. If the 7 trustee sold a location to a buyer, who then arrives at the location only to find they chose another
vendor, which is likely, the buyer could and should sue the trustee.
FYI, we are a married partnership, not an LLC or other entity.

You won't get anywhere suing the law firm, so probably should not focus on that. If necessary, I can get into it a little more later as to why but malpractice is very very very difficult to prove in the bankruptcy context (legal malpractice, in general, is very difficult to prove). Your post is a bit rambling and hard to follow. Please use the enter key to make paragraphs.

Not sure why your case would go back to chapter 7, that is not what would happen if the case is dismissed. If your chapter 13 is dismissed, it is "dismissed.". It doesn't go back to being a chapter 7. It may not be such a bad idea to let the case dismiss and start over from scratch (assuming that is what would happen).

To help clarify things, it would help if we knew (1) the value of the business assets in question, and (2) in a general way, what sort of business you have, and (3) again, in a general way, what business assets we are talking about. Is the business incorporated in some manner (e.g. and LLC, S-corp, etc). If so, is there any debt against the business?

You won't get anywhere suing the law firm, so probably should not focus on that. If necessary, I can get into it a little more later as to why but malpractice is very very very difficult to prove in the bankruptcy context (legal malpractice, in general, is very difficult to prove). Your post is a bit rambling and hard to follow. Please use the enter key to make paragraphs.

Not sure why your case would go back to chapter 7, that is not what would happen if the case is dismissed. If your chapter 13 is dismissed, it is "dismissed.". It doesn't go back to being a chapter 7. It may not be such a bad idea to let the case dismiss and start over from scratch (assuming that is what would happen).

To help clarify things, it would help if we knew (1) the value of the business assets in question, and (2) in a general way, what sort of business you have, and (3) again, in a general way, what business assets we are talking about. Is the business incorporated in some manner (e.g. and LLC, S-corp, etc). If so, is there any debt against the business?

[tshep9000]

Yes, it is the income we receive from our vending accounts, which we don't own as we are there ONLY by their permission.
So it would be difficult for the 7 trustee to sell those accounts as we don't own them ourselves. Is he going to dictate to them
that he is their new vendor ? Or the person he "sold" it to is ?!? Not hardly ! The trustee could and should be sued by the buyer
he burned when the buyer realizes he doesn't own the account, and that the location decided to go with another vendor
after we ( or business ) told them we were ceasing operations there.

[LadyInTheRed]

Is the $130K the value of your business equipment, or is the book of business and income potential factored in? That is a lot higher than the CA wild card exemption and tools of trade exemption. (ETA: I just reread on of your posts and I think that value includes your book of business. So skip to the next question).

If the $130k is more than equipment, what is the value of the equipment only? I assume the equipment is vending machines. Is that correct?

Do you pass the Chap 7 means test?

[tshep9000]

Our equipment is valued at around 17K. That is our truck and vending machines. Our warehouse is a storage locker which we rent.
The main value of our business is the income we receive from the accounts. However, the big caveat is WE DON'T OWN THE ACCOUNTS !
We service these locations only at their pleasure. They could decide they want another vendor and we could be gone tomorrow .
So it would be very difficult for the chapter 7 trustee to sell these "assets" which we don't actually own. We bought these accounts
from a broker and had to "sneak" in, not divulging that we were the new vendor. We pretended to be employees of the original vendor.
This is a common reality in the vending business when buying and selling vending accounts. If the chapter 7 trustee tried to sell those
accounts, he would be in for a rude awakening as the buyer would soon realize they don't own the account/s they bought,
and that the location/s has already decided on another vendor ! The buyer could and should sue the trustee for fraud.
I guess the 7 trustee could tell us to cease operations, but how could he stop us ? I've heard he could sue us, etc.
What would be a worst case scenario here ?

Thanks

Is the $130K the value of your business equipment, or is the book of business and income potential factored in? That is a lot higher than the CA wild card exemption and tools of trade exemption. (ETA: I just reread on of your posts and I think that value includes your book of business. So skip to the next question).

If the $130k is more than equipment, what is the value of the equipment only? I assume the equipment is vending machines. Is that correct?

Do you pass the Chap 7 means test?

[LadyInTheRed]

What is your agreement with your customers? Have your customers agreed that your verbal contract with them is to continue until a certain date and that it is transferable to another person? If not, the customers are pretty worthless to the trustee because he isn't likely to find a buyer without a binding agreement by your customers to do business with your successor. If I were you, I'd ask my attorney about just exempting the machines, stock and vehicle and whatever part of the customer accounts you can. I suspect a trustee would abandon the non exempt portion of the accounts.

You didn't say if you pass the Chap 7 means test. I really wonder whether you need a Chap 13 to keep the business. But, maybe there are some details missing.

[keepsmiling]

Maybe one of the mods can break up the first post? OP when you post, do you have the whole screen up? Your posts are difficult to read and will not get as much attention as they might otherwise.

OP even your subsequent posts need to be broken up a bit. They don't give us much time to edit posts here so a mod needs to do it. Good luck.

[tshep9000]

Hi Lady in the Red,

Our agreement with our customers is non binding - strictly a verbal agreement. It doesn't go to a particular date or anything like that. They could fire us
today or three years from now.
Regarding the Chapter 7 means test : I'm not sure what that is exactly. Our attorneys originally filed for the Chapter 7 - does that mean we
passed the means test ?

What is your agreement with your customers? Have your customers agreed that your verbal contract with them is to continue until a certain date and that it is transferable to another person? If not, the customers are pretty worthless to the trustee because he isn't likely to find a buyer without a binding agreement by your customers to do business with your successor. If I were you, I'd ask my attorney about just exempting the machines, stock and vehicle and whatever part of the customer accounts you can. I suspect a trustee would abandon the non exempt portion of the accounts.

You didn't say if you pass the Chap 7 means test. I really wonder whether you need a Chap 13 to keep the business. But, maybe there are some details missing.

[tshep9000]

Thanks. I'll pay more attention to my postings format.

[HHM]

Well, obviously, the Trustee doesn't see it that way...and having some familiarity with the vending business, the location providers generally don't care about turnover so long as they get their cut and they don't see any drop off in performance.

It sounds like the trustee is a bit more sophisticated, he is obviously valuing the business as a "going concern" and can probably sell it for something. Heck, if he sold it for $20,000, lock, stock and barrel, the trustee comes out ahead. You are getting too hung up on this idea of owning accounts. The fact is, You DO OWN the accounts, a verbal agreement is still a contract, you have vending machines located at various locations, presumably with the location providers consent and some agreement for payment of lease. That is an arrangement that is easily sold. Keep in mind, ANY contract can be terminated (or breached), so the fact that the location providers can pull the plug (and for that matter, that you can remove the machines whenever you wish) has no legal significance.

In that respect, it was a "mistake" to initially file this case as a chapter 7 bankruptcy if the stated goal was to keep the business. That leaves the following options.

1. Stay in the chapter 13, which is likely to happen.
2. Let the chapter 13 dismiss, assuming that it would actually dismiss and not revert to a 7 (the latter being an odd result).