Idaho Business Chapter 7

[mek2112]

Has anyone filed chapter 7 for a small business in Idaho? Any advice or recommendations? I need to hire an attorney but I am not very happy with the ones I have spoken to. Seems like they are either not customer service friendly, or just interested in the highest fee they can get. More frustration in an already frustrating situation.

[HHM]

You may need to think about your expectations. If you think everyone's fee is too high, then you probably have an unrealistic expectation of what it really costs. If you meet with 10 attorneys, and they all quote you $4-$5K, and you were only expecting to pay $1,500, that's an issue with your perception of the expected cost, not the attorneys.

Customer service tends to correlate to fee. The more customer service you want, the higher the fee.

[despritfreya]

I assume the business is a corporation or a LLC.

The more important question is "why do you want to file a Chapter 7 for a business - what are you trying to accomplish?'

Corporations/LLCs DO NOT get discharges in a Chapter 7. IMO there is only one reason to file a 7 for such an entity. . . the principal of the entity wants to purchase the assets of the entity from the bk estate and start a new business doing exactly the same thing without the threat of successor liability (alter ego) issues. Other than that, I see no real reason to spend $$ hiring an attny to file a Chapter 7 for a business. (There may be one or two additional reasons but such would be very unique and specific to a particular situation.)

Des.

[HHM]

Well, I do think there are more reasons than that.

But you are correct, you need to examine the reasons for filing the business as a chap 7.

1. The owner doesn't want the hassle.
2. High litigation risk, so the BK isolates the claims in BK.
3. As you stated, the owner to buy assets (although, I think that is fairly rare since the owner has personally guaranteed the debt).
4. Regain control and get some peace. If the banks are all coming, a BK stops everything and gets it back under control.
5. If there are priority debts and aggressive collection, file chap 7 and turn it over to the trustee.

For example, in AZ, 873 business chapter 7's were filed for the 12 months ending June 2012 as opposed to only 347 chapter 11's.

[despritfreya]

HHM, this is where we will continue to disagree. . .

The owner doesn't want the hassle.

Once the case is closed the creditor is free to continue collections - no discharge. Some do, some don’t. There is no greater hassle in just letting the entity die a slow death outside of bk.

High litigation risk, so the BK isolates the claims in BK.

No it doesn’t. No such thing as a corporate 523 and, the risk of litigation vs. the principal is vastly increased as Trustees will go after payments to the principals (payback of loans or alleged raiding of corporate coffers). We have settled many of those types of issues over the years.

As you stated, the owner to buy assets (although, I think that is fairly rare since the owner has personally guaranteed the debt)

Not rare at all - one of the only reasons we put corps into 7s. Works very nicely. As to personal guarantees, the principal usually will file his/her own bk to take care of that problem.

Regain control and get some peace. If the banks are all coming, a BK stops everything and gets it back under control.

Not in the context of a 7. The moment the 7 is filed the Trustee shuts the business down so there is nothing to regain control over. The Trustee risks too much liability to allow the business to continue to operate. Trustee is a liquidating agent and, baring some unusual circumstance, has no authority to allow a business to continue to operate.

We just converted a case to an 11 because we could not get a deal put together fast enough before the Trustee shut us down.

If there are priority debts and aggressive collection, file chap 7 and turn it over to the trustee.

Not a good idea as doing so just gave that aggressive creditor free legal services. Why pay your own lawyer to go after assets when you can let the strong arm of a bk trustee do the same thing for free? Seen this many times and it always causes me to shake my head not understanding why the principal thought filing a corporate 7 was a “good idea”.

Now, if you mean that filing the 7 will allow a Trustee to more easily collect corporate receivables so that taxes and priority wages can be paid, well maybe. . . but there better be a lot of receivables that can be collected because most of those funds will simply line the pocket of the Trustee's lawyer and the Trustee before it ever gets to the priority claims.

For example, in AZ, 873 business chapter 7's were filed for the 12 months ending June 2012 as opposed to only 347 chapter 11's. -

I'll bet 90% of those cases were unnecessary and filed just so some lawyer could make a fee (I am not talking about major corporations - I am talking about ones that are nothing more than "mom & pop" businesses with fewer than 10 employees). Pull a few. You will find that they were closed as no asset cases or you will find various APs filed against the owners for recovery of preferences or fraudulent conveyances.

Just remember, some of those 873 cases were filed by my Firm. I can assure you that the only reason we did so was to allow the principal, either directly or through a newly created entity, to buy the assets from the estate.

Oh - and one more thing. . . before we did file those cases, we made darn sure there would be no issues raised by a Trustee as to what the principal did or did not do with corporate assets.

Des.

[justbroke]

I can tell you for sure, that the "business" creditors just keep coming and coming and coming. I receive about 1 call per month from a creditor, or junk debt buyer, who purchased my old "real estate" company debt. Although I discharged my personal responsibility, they just keep calling me. I politely tell them it has been discharged as to me. They tell me that they're "trying to figure out whether to pursue the company". I tell them "good luck but stop calling ME"! I had to threaten one of them with a stay violation for the continual resale of the debt to yet another JDB so that the new JDB could bother me again.

I wish they'd go away, permanently!

[HHM]

Correct, we will just have to agree to disagree, not worth it to explain here.

But I highly doubt 90% of those chapter 7's were unnecessay. Our job is to present the client his options, it is up to the client to choose what is important to them. Whether it is necessary or not is irrelevant, it is whether the option achieves a client's perceived goal.

[mek2112]

I guess I had some assumptions about a Business Chapter 7 that this thread has answered. If this is not going to discharge anything, and any item personally guaranteed is just going to come after me than I would be wasting time. I have 2 small notes due on the business worth about $35K total, 2 Business credit cards around $32k, accounts payable worth $24K, and franchise fees of around $20K, and a equipment lease $443/mnth with 40 months to go. The bank notes, the lease, and the franchise fees are personally guaranteed, although I might be able to negotiate a deal on the franchise fees. The value of the assets at sale probably would not pay off half the bank notes. Now what do you think of the situation?

[despritfreya]

Mek2112,

Based upon your post. . .

1. You have no interest in continuing to operate this or a similar business - which, even if you did, would violate the enforceable non-compete clause in the franchise agreement;
2. The business owes in excess of $100,000 of unsecured debt which you personally guaranteed;
3. The business has an equipment lease which you personally guaranteed;
4. If liquidated, there would be insufficient money to pay all of the entity debt;

99% of the time, someone walking into our office with the above, would be advised to shut the doors, turn back the leased equipment, if there were any assets to sell, sell them and use the $ to pay corporate debt, beginning with any payroll and/or sales taxes. Once shut down come back to discuss a personal bk to wipe out the personal guarantees.

As to creditors of the entity, they can sue the entity but they would be suing a dead person so, who cares. Let them get judgments vs. the entity and then try to collect. Tough to collect from a dead person.

You met with lawyers with the idea of filing a bk for the entity. Now meet with lawyers with the idea of not filing one for the entity but filing one for yourself. See what responses you get and go from there.

Des.

[frogger]

I can tell you for sure, that the "business" creditors just keep coming and coming and coming. I receive about 1 call per month from a creditor, or junk debt buyer, who purchased my old "real estate" company debt. Although I discharged my personal responsibility, they just keep calling me. I politely tell them it has been discharged as to me. They tell me that they're "trying to figure out whether to pursue the company". I tell them "good luck but stop calling ME"! I had to threaten one of them with a stay violation for the continual resale of the debt to yet another JDB so that the new JDB could bother me again.

I wish they'd go away, permanently!

We Chapter 7'd our LLC and Chapter 7'd our personal life at the same time upon the advice from our attorney. We have not received a single call for the personal debt or corporate debt since filing.

Life is sweet...........

[mek2112]

Thank you all for your quick replies,

1. You have no interest in continuing to operate this or a similar business - which, even if you did, would violate the enforceable non-compete clause in the franchise agreement;
This is absolutely accurate

2. The business owes in excess of $100,000 of unsecured debt which you personally guaranteed;
I don't believe that the portion I personally guaranteed is even $100K. I'm not sure if this matters, but if the $100K personally guaranteed is some sort of threshold, I am below that.

3. The business has an equipment lease which you personally guaranteed;
Accurate

4. If liquidated, there would be insufficient money to pay all of the entity debt;
By a huge amount

I am current on all taxes, so I guess the only thing to do is sell everything off and file personally. Thank you all for helping me understand what I need to do. Now if you could explain it to my wife...... She is very unhappy about having to file, although I I need to find out if it would be just me filing.

Thanks again

[despritfreya]

Mek2112,

There is no threshold as to the amount of debt you personally guaranteed. Filing a bk for yourself (and your wife if necessary) depends upon many factors, including whether or not you “qualify” if you wish to file a Chapter 7. This is why you need to consult with several attnys. Consultations are usually free so go to as many attnys as you can and then hire the one you feel most comfortable with (which may not be the cheapest one you find).

As to selling corporate assets, please make sure the proceeds are deposited into the corporate bank account and then used to pay corporate debt. Document, document, document. You do not want a creditor arguing that you raided the corporate coffers for your own personal gain and run the risk of some litigation relating to the same in your personal bk (rare but it does happen). Again, discuss this with an attny before you do anything.

Des.