I Screwed Up Royally - How Do I Get Out?

[rivermama]

I got involved with a crook and now I am paying the price.

I was starting a new business (in Arizona) and found a "consultant" to assist me. He set me up with a new corp (NV) and helped me get leases for medical equipment ( 2 leases total of $110,000). The leases were signed by me and his "business partner". I signed personal guarantees on both leases.

The equipment was delivered and one night (in the middle of the night) he came and took the equipment (from Arizona) and placed it in one if his other clients office in NV. He was also going to make the payments to the leasing companies, handle the books, pay me under his management company (so I quit my medical job) etc.

Now, I got sued by both leasing companies. I did not answer the summons because he said he would handle the mis-guided payments. Now, I have a judgment, wages just garnished (old employer took me back) and garnished my checking accounts.

His "business partner" who also co-signed (personal guarantee) - guess what - filed personal bankruptcy. He is relieved from these 2 leases. I have filed a police report for the theft of the equipment (going no place with this).

Since he never did pay me, I am now in foreclosure on my house (I used all of my savings for other items that I would need for the new business).

Now, I was told I probably need to file Chap 7 - but - now for question: If I check the box on the petition "debts are primarily consumer", I don't pass the means test. If I check the "debts are primarily business", (means test not used) then I have found that since I am losing my house (upside down about $120K and only $8K in personal credit card debt, & $8K in equity in my car) then I can't file this as business debt because my personal is more than the business debt. Is that true? I was told, I will lose my car. I already accepted that my house is gone.

Thank you in advance for reading this post. I am so lost. I just don't know what to do.

[AngelinaCat]

Hi rivermama. Welcome to the forum.

I really feel for you and your predicament. You need to schedule several free consultations with experienced BK attorneys, and see what they advise. You may need to consult with a criminal attorney also. But It could be difficult to prove fraud--as you have already found out with filing a police report. And trying to sue this person in a civil court is very expensive.

I am afraid that I cannot offer any more help than this right now. But someone else will surely come by later on and offer an opinion and advice.

Good luck to you.

[rivermama]

Thanks Angelina Cat for your reply.

I have talked to 2 BK attorneys and was told that "it is to the discretion" of the BK trustee. I just don't feel I can afford to make any more mistakes.

I looked into a criminal attorney, but I have found out recently that the "consultant" does not have 2 nickles to rub together.

PS: I really like your quote!!!

[bcohen]

Now, I got sued by both leasing companies. I did not answer the summons because he said he would handle the mis-guided payments. Now, I have a judgment, wages just garnished (old employer took me back) and garnished my checking accounts...

Since he never did pay me, I am now in foreclosure on my house (I used all of my savings for other items that I would need for the new business)...

Now, I was told I probably need to file Chap 7 - but - now for question: If I check the box on the petition "debts are primarily consumer", I don't pass the means test. If I check the "debts are primarily business", (means test not used) then I have found that since I am losing my house (upside down about $120K and only $8K in personal credit card debt, & $8K in equity in my car) then I can't file this as business debt because my personal is more than the business debt. Is that true?

I would say that Chapter 7 is your best option here. If your wages are being garnished because of a judgment for this business debt then I fail to see how your house being in foreclosure makes the consumer debt higher than the business debt. With a judgment of $100,000+ for a business debt against you, you should sail through the means test with no problem.

Your "business partner" was able to discharge this debt in bankruptcy, and now it sounds like it's your time to do the same.

[despritfreya]

You state that you are $120k upside down on your mortgage. That tells me you owe over $300k for the home. Since the home has not been lost to a foreclosure and the mortgage is a consumer debt, if the only business debt you have is the $110k judgment your debts ARE primarily consumer in nature. The only times a mortgage is not considered as a consumer debt is when the home was an investment property (like a rental) or you took out a 2nd (or refied and pulled $$ out) and used the funds to support a business.

If the property has been foreclosed then the debt associated with the home (at least as it relates to a first mortgage) is gone and does not get listed in the bk. But, until the property is foreclosed, it is your debt, must be listed, and, unless it was taken out for "business purposes", is a consumer debt.

If you file bk and you have a potential claim against the “business partner” you need to list that claim (no matter how far fetched or uncollectible it is) as an asset on Schedule B. You also need to make sure the “business partner” is listed on the master mailing matrix just in case he, for some unknown reason, thinks he has a claim against you.

As it relates to the vehicle, your exemption is $5k . If the vehicle has equity of $8k, yes you could lose it to a Chapter 7 Trustee. You may be able to buy it back but that would be up to the Trustee. Typically the Trustee will use your offer as an “opening bid” to see if there is anyone out there willing to pay more. If that happens you can get into a bidding war (subject to a credit for the first $5k).

You need to meet with several attnys to discuss your options. Consultations are usually free. You simply may not be a Chapter 7.

Des.

[bcohen]

So what are you suggesting? That he wait until after the house forecloses to file Chapter 7, and let his wages be garnished until then? Or are you suggesting that he file Chapter 13 now, and try to "lien strip" the junior mortgage(s) and/or judgment lien(s)?

[despritfreya]

So what are you suggesting? That he wait until after the house forecloses to file Chapter 7, and let his wages be garnished until then? Or are you suggesting that he file Chapter 13 now, and try to "lien strip" the junior mortgage(s) and/or judgment lien(s)?

Not suggesting anything other than he consult with several attnys.

Des.

[HardingLaw]

First I would close the corporation. If the company no longer exists the business debt is mute. Then I would file a personal bankruptcy and be sure you list all business debts to which you personally guaranteed. Hope that helps.

[HardingLaw]

The only way your wages could be garnished is if they sued you as an individual. Just because you took out a loan for business does not make it a business debt. Did you sign the loan as an officer of the company or as you an individual. That is what determines the type of debt it is.

[HHM]

You are stuck between a rock and the hard place. You mortgage, your "total" mortgage is consumer debt. The rule for the means test is that to bypass the means test, your debt must be "primarily" non-consumer debt (read, 50.1% non-consumer). That doesn't appear to be the case based on what you described. So, to even have a shot at a non-con 7; the house will need to foreclosure before you can file BK. However, you are in the midst of garnishment, so it could be a while and you will be garnished the entire time.

Option B, file BK 13 now, stop the garnishment. Yes, that puts you into a 5 year payment plan, but there are benefits. Even if the house goes to foreclosure, with the deficiency as high as it is, it is not clear whether you could do a non-con 7 anyway.

[tobee43]

if this person is or was a business partner, did you have an LLC or any type of written agreement with respect to liabilities of the business?

question...des...hhm... i thought it was a schedule h of the bankruptcy petition you must list all of your codebtors? then schedule g for executory contracts and unexpired leases, if OP files and there are codebtors listed on the petition what type of responsibility would, if any at all, have, with the courts?

[HHM]

Tobee, Not sure I understand your questions about co-debtors.

Co-Debtors on a BK petition are almost purely informational. The only time there is any legal effect to being a co-debtor in someone's BK is in chapter 13 and the co-debtor stay. Aside from that, I don't even think co-debtors end up on the mailing matrix.

[tobee43]

hhm, what came into my thoughts was a petition i once saw. it was for an individual, that was filing chapter 7, had an s corp, (which was filed separately) but listed their business partner on schedule h on their personal petition. i was just wondering if that means a hill of beans or if it indicates any liability on the part of a codebtor for any debts they share such as the leased equipment that caused the OP's law suits?

so, i guess what you are saying , is it means nothing to list them. thanks