Question regarding self-employment and Ch. 7

[dinosaurlove]

Hi everyone, I am new to this so please bear with what might seem to be amateur questions. I have enjoyed reading several posts that have been educating and informative. I even admit that it has helped with my anxiety to read other peoples stories and to realize that I am not the only one out there who is struggling. I do have a few questions that apply to my situation that I couldn't find a direct answer to in other threads. A brief overview..

My wife works as a teacher, her income alone puts us under the means test median. I am currently self-employed and have been making a decent income for the prior 5 years. Our combined income puts us significantly above the means test median. Over the past 6 months my business income began to slide due to a major client basically cutting back on orders due to their own economic issues. While we have been able to stay afloat, and still above the means test median for income, we have slowly began to struggle with keeping on top of payments (consumer debt totalling around 100K+ in addition to some back taxes). In addition, we have consumed our savings. December 2012 was my worst business month for the year and January has started off even slower. I am definitely starting to wonder if it is worth the struggle to keep paying on debt that may eventually go into default anyway.

I have a fairly decent grasp of the means test and realize that to qualify for Chapter 7, my income would have to significantly drop for the next 4-5 months before I would actually qualify for a Chapter 7. Chapter 13 does not appeal to us because we already enrolled in a DMP to help ease our interest rates on CC's etc. In essence, I can't see Chapter 13 being much different than our current DMP would be.

In a nutshell, here is my main question.... Is it possible for me to close my business due to declining work, pull my kids out of daycare (I can't afford it anymore so I would have to care for them myself), and then file for Chapter 7 citing unemployment. I know it's a crazy question, but I feel like I am running out of options. At my current income levels for the prior month and a half, I won't be able to sustain solvency and trying to stay afloat feels like prolonging the inevitable.

If there is a thread that already specifically addresses closing a business to file Ch 7, please point me to it. Otherwise, your thoughts and expertise are greatly appreciated.

[alo]

I think a lot of families are going through similar situations (I know we are) and the decision can be tough. I would like to hear what the experts and others have to say. Mostly, would you have to shut down the business? Best of luck to you!

[keepsmiling]

Hi dino, welcome to the forum!
First-- GET OUT OF YOUR DMP!!! They almost never work. This forum is full of people who tried them, lost a ton of cash, and wound up in bk.

Next--you are not required to continue to run a losing business in order to file bk.

Realize that once you take out the cost of daycare, you could wind up in a 13 anyway.... but it might be very manageable OR avoidable. It all depends... if you share your numbers, folks here are very helpful at critiquing. Chances are you are living at a very minimal level right now, and expenses for such things as FOOD might be increased.


Keep reading, keep posting, we'll get you on your way to FREEDOM

[fordhipo]

Dino,
We were in a similar situation, my wife is a teacher and I owned my own building company. In February of 2012 work was slowing down but had 2 jobs lined up for after the job I was on finished. Well both jobs fell through and by the end of march I was pretty much unemployed. Foolishly we burned through our savings and I was selling stuff on ebay just to get money coming in. In May, while looking at a stack of bills and $12 in the personal check book and even less in the business check book, we had that talk that I don't think anyone whats to have with their spouse, that we had to file.

We had a lot of personal debt and some business debt. Most of the business debt was personally guaranteed by me. While talking to our lawyer to discuss our options I could have kept the business running but would have still been responsible for the debt or close the business and roll the debt into the personal BK. Also the business was a s-corp and I was the sole share holder so as soon as we filed, the business was under the control of the trustee. I chose to shut the business down and dissolve the corporation. They way my lawyer told me was they can't make me keep the business running and they can't stop me from making a living, so the choice had to be mine and I chose the best financial way for us.

At our 341 meeting the trustee asked where I work and I told him I was pretty much unemployed but was doing odd jobs with other crews to keep some money coming in (which I was was, didn't want to lie to the trustee).
Also not to scare you, but our 341 was the one you only want to read about. LOL Our trustee hired an outside law firm, continued our 341 meeting till a month later, asked for 2 years of all personal and business finance records, and sent a request for detailed answers to 27 different questions. I am a pack rat when it comes to records so had everything they asked for and answered everything truthfully. Some of the reason for all of this was we were an asset case but a lot of the info wanted was about the business and that I was truly losing money and not hiding it.
BTW so far so good, filed in July, discharged in October, all assets bought back or auctioned, TT sending out payments to debt holders, and just waiting for the checks to clear to close case.

Sorry for the novel but if you have any specific questions I (or some one with more experience) will try to answer for you.
Ken

[btbeme]

It isn't a crazy question, nor is it an evil thought to plan for a possible BK. If asked my opinion, I will say that a smart person should not leave any option off the table.

Here are my suggestions. First, start with a financial plan. This might mean a Plan A (where you are able to move your business back into the green and pay off your debts quickly) all they way down to a Plan G, or Plan K, or Plan Z. Consider all reasonable options in making those plans, all the while making certain that the end result is for you and your family to maintain at least a basic, modest lifestyle without having to cross your fingers hoping for the next paycheck.

Next, look at the two or three plans that seem most realistic. If the BK option is included in one - or all - of those options, you may have answered your own question. Keepsmiling had some solid points in his post above. They reflect how many of us feel.

As I have posted many times before, it is best to pull your parachute ring early during the free fall rather than waiting until you no longer have enough time or airspace below you. Strategic planning for a successful BK is, in my opinion, a smart move if you feel it is the best move (or otherwise inevitable). And, time is definitely a consideration. Timing can be EVERYTHING in a BK filing. A highly respected BK attorney in my area told me his average client was 5-6 months away from filing when they first talked to him. I scoffed at that notion...until I discovered that I was filing almost a full eight months after first talking to attorneys about the possibility.

So, I suggest that you do what is best for you and your family. If that means a BK filing, then so be it - just use the time you have to carefully consider all options and strategies. Do so with the help of a good BK attorney. Shutting down a business prior to a BK comes with a full set of trap doors (fordhipo attests to that above), so an attorney experienced with that scenario would be invaluable.

We're here for you, too.

[HHM]

First, let's clarify one mis-assumption you have...chapter 13's and DMP are miles apart. In chapter 13, you pay back what you can actually afford to pay, in DMP's, you pay back your entire debt but at a reduced interest rate.

Second, there is "strategic" planning for BK, and then there is "stupidity planning" for BK. The odd thing about BK is that it is actually harder to market a BK attorney than a VD clinic. At least with a VD clinic, the patient actually wants to see the doctor. But with the BK attorney, the client wants to try all the creams and snake oils being sold by the bearded fellow in the ally way before going to get real answers from the only people that really know how to deal with debt.

As far as closing your business...you are approaching it from the wrong angle. You NEVER close a business, quit a job etc. so you can file BK. That is "stupid BK planning." Now, if you are were planning on closing it anyway for other, good, reasons, that's fine. And how you know you have good reasons is to simply answer this question...if you had zero debt except for your mortgage, would you actually close the business or quit the job?

[dinosaurlove]

These are all great responses, thanks for your input.