Pushed into BK?

[pushed]

Hi. This is my first post in a forum I never thought I would need. I have read quite a bit over this past week and have found this site to be rich in resources.

I am an engineering consultant practicing through a C corporation I set up in 1980. My projects tend to be large and usually only have one at a time. A typical project will be for $300k over a 15 month period.

I became temporarily disabled in 2005 at about the time my last project ended. I had surgery in the fall of 2007 and was ready to begin work by December 2007. The project I was counting on was postponed due to the economy. It is postponed indefinitely as it was with a state agency and the state has severe budget problems.

Over the past three years I had exhausted my savings and began to borrow against my CC's for living expenses and to maintain my business so I could try to land another project. Basically, I used three BOA CC's with high limits. I always kept one completely clear so I could use it to get a cash advance at 1% or 2% to pay off the card on which the introductory rate was about to expire, thus bringing that card to a zero balance.

I was about to make that transaction three weeks ago and when I went online I found that the CC with the zero balance had been "closed." I called BOA to find out why and I was told that they were reducing credit to individuals as part of the credit crisis. I then explained my situation and asked if I could negotiate a lower rate on the CC that was about to go from 1% to 18%. I was transferred to the "retention" dept.

Over the several years that I had used these three CC's I had never missed a payment or been late on a payment.

When I spoke with someone in the retention dept. I explained what I would like to do, which was to negotiate a lower rate on the one cc and continue to pay the 2% rate on the other cc. The woman said she was "closing" both accounts and that she would transfer me to a "company they use" who would set up a loan over a period such as five years. But she offered to forgive 35% of the debt ($58k) if I could completely pay the remaining 65% in the next seven days. Note the total debt is $58k.

I told her I didn't have the resources to do that and that I would prefer to keep the accounts open and continue to make monthly payments. She said they that she had just closed them and my only option is to negotiate with their "preferred" company.

Other pertinent facts: I would qualify for Chap. 7. I have no other debt besides a Chase CC that I use for everyday business expenses and pay off in full every month. Since my divorce in '97 I have been renting a house. My car is owned by my corp. My daughter is a freshman in college and all of my savings for her education are in 529 accounts.

I have called BOA each week since then asking to be connected to their "preferred company" only to be told that they are swamped and I will be called as they work their way through their backlog.

First, can they simply close both CC accounts and refuse to accept my monthly payments? And try to push me into BK?

Second, am I better off going Ch 7 BK or negotiating a loan with this mysterious company?

Until I get a project it will be difficult to make the loan payments, but I could at least pay what I would have been paying BOA. With the state of the economy, I have seen no RFP's (request for proposals) in the US or abroad (about 30% of my work has been overseas but the world economy is struggling too). Once Obama's infrastructure plan gets going I'm certain I can find work, but I don't expect to see a dime before mid-summer, at the earliest. Once I have a project I should be able to retire the debt in a reasonable period.

Thank you for your help.

[justbroke]

First, can they simply close both CC accounts and refuse to accept my monthly payments? And try to push me into BK?

They can absolutely close an account on the spot. Sounds like that's exactly what they did to you, even though they had only closed one. Not sure they are pushing you to BK, but maybe the credit analyst figured you were heading that way, and wanted to stop the bleeding for the bank she represented.

Second, am I better off going Ch 7 BK or negotiating a loan with this mysterious company?

Probably better off in a Chapter 7, unless that would hurt your professional status. I'd check into this loan first, just to see what they offer. Ya never know.

BTW, a lot of Obama's infrastructure plans... well... looks like $300M in pork so far on the from the first 420+ mayors. Unless you like building (designing) polar bear exhibits in Rhode Island... LOL.

[Flamingo]

First, can they simply close both CC accounts and refuse to accept my monthly payments? And try to push me into BK?

Second, am I better off going Ch 7 BK or negotiating a loan with this mysterious company?

Until I get a project it will be difficult to make the loan payments, but I could at least pay what I would have been paying BOA. With the state of the economy, I have seen no RFP's (request for proposals) in the US or abroad (about 30% of my work has been overseas but the world economy is struggling too). Once Obama's infrastructure plan gets going I'm certain I can find work, but I don't expect to see a dime before mid-summer, at the earliest. Once I have a project I should be able to retire the debt in a reasonable period.

Thank you for your help.

If you pull out the brochure or small print pamphlet that came with your credit cards, you will note one clause says in there that the creditor can close your account at any time for any reason. You transferring money back and forth as you were doing was caught (as it usually is) and when one starts robbing Peter to pay Paul it shows there is financial difficulty and the creditor will either close the account or reduce the available limit, or raise your rate.

[pushed]

Thanks for the replies. Of course I recognize that BOA can close any account at any time for any reason. Obviously, I didn't state my concern very well. My point to them was why even offer to write off 35% of the debt if I am willing to continue making payments on the one cc at the introductory rate and the other at either 18% or a negotiated rate that was somewhat lower? These CC accounts were not non-performing. I have had these cards since '93, '97 and '02 and I have never missed a payment or been late.

It seems to me that there is some connection between BOA's receipt of $25 billion in TARP funds and their desire to force me (and others) into a loan agreement or BK.

Thanks.

[JRScott]

Wouldn't be any point to force you into a Chapter 7. From what you say you have no assets that could be liquidated to pay them.

Many Americans are losing some credit, some folks have had it completely cut off, others have had their limits lowered by half. It is part of the recession.

They probably offered the deal in hopes you'd settle so they'd get something rather than nothing. I'm assuming as a business you need these cards to pay for materials, travel etc. That's going to make it hard.

They wouldn't refuse your payment but in closing your accounts they basically reduced your limit to 0, so they'll probably hit you every month for over the limit charges. They'll also probably jack up your interest rates if you miss a payment. Still you need to sit down, if you can't make the payments until next summer then its time to stop paying them. It'll ding your credit, but if you've not got the money you've not got the money.

[pushed]

Thanks JRScott. There is no way they would know about the status of my assets. Two of the CC's had limits above $50k primarily due to my income and home ownership (and equity) when I applied. Plus, I used the cards when traveling overseas, sometimes racking up $10k in a billing cycle and I always paid them off in full (I know that they prefer users that don't pay their monthly bill off in full).

However, your statement about over limit charges and fees for missed payments caught my eye since the BOA "retention" representative told me the accounts were closed and I was not to make any further payments...the restructuring of my debt would take care of that. But I haven't heard from them in three weeks, even though I've called each week.

You are correct in that I will need a CC for my business and my travel when working on a project.

From what I have read on this site, my case is unusual in that I have had not missed a single payment or had any late payments. The only action I took was to ask if they would accept a lower interest rate after my introductory rate expired this month on the one CC account. Their reply was to immediately close my accounts even though I stated that I would rather continue to make the required payments on both accounts.

My financial misfortune is due to the economy. There is simply no work available in my field of specialty or in closely related fields. This is considering the US and the world markets. I have explored fields outside of my specialization, but nothing has turned up in my searches.

I have been successful in my work since 1980 and have a fair amount saved in IRA's and 529's for my daughter's education. My understanding is that these cannot be touched in BK.

My accountant has managed my retained earnings to a point where I didn't have to pay corporate taxes (double taxation). I contributed the maximum to retirement accounts, took advantage of research credits, etc. Now after three years of relative inactivity, the corporation owes me money as I have lent it money to pay rent and other expenses so I can eventually obtain contracts for consulting.

From reading in this forum, my corporation, which I own 100%, would be exempt in Chap. 7 since it is my source of income. Is that correct? The corp. name is widely known in the US and around the world due to projects and professional publications. The corp. does have assets (almost all fully depreciated for tax purposes), but most are not worth anything to anyone else as they were designed by me. Without me, the corp. is worth $0, aside for desks, file cabinets, etc.

Thanks for your input.

[Never_Again]

You also said that your car is owned by the corporation. You said this like it would be an exempt asset?

The problem is, I would figure, that you are an owner, if not the owner, of the corporation. Therefore, the shares of the corporation would be an asset, and subject to seizure by the trustee, depending upon exemptions allowed by your state. These exemptions would probably be less than what you would be allowed for a vehicle.

Does your corporation own any other assets? Are there any other shareholders? A corporation is an entity by itself, but the stock shares are very much an asset.

[pushed]

Never_Again,

Yes, I own 100% of the corporation. It does have assets including my vehicle ('97 Jeep Grand Cherokee), but it also has liabilities, primarily to me. The other assets are specialized electronics which I designed and cannot be used by anyone else without extensive training by me. No one would buy the corporation without retaining me as a consultant. As a separate entity it is practically worthless except for about $300 in desks and file cabinets.

The corporation provides the means for my earnings, which is why I thought it might be exempt. You could look at like a magician with his props. Without his knowledge the props are worth nothing.

If the trustee were to seize the corporation, my means to earn a living, he would receive very, very little since my "inventions" could not be used by anyone else without my direct instruction. Reverse engineering is simply too expensive.

It is my understanding that trustees will not interfere with a solely owned business if that is how one earns a living.

Thanks for all of the replies. I want to determine what is best for my condition.

[StartingOver08]

Never_Again,

Yes, I own 100% of the corporation. It does have assets including my vehicle ('97 Jeep Grand Cherokee), but it also has liabilities, primarily to me. The other assets are specialized electronics which I designed and cannot be used by anyone else without extensive training by me. No one would buy the corporation without retaining me as a consultant. As a separate entity it is practically worthless except for about $300 in desks and file cabinets.

The corporation provides the means for my earnings, which is why I thought it might be exempt. You could look at like a magician with his props. Without his knowledge the props are worth nothing.

If the trustee were to seize the corporation, my means to earn a living, he would receive very, very little since my "inventions" could not be used by anyone else without my direct instruction. Reverse engineering is simply too expensive.

It is my understanding that trustees will not interfere with a solely owned business if that is how one earns a living.
Thanks for all of the replies. I want to determine what is best for my condition.

This statement is not true, unfortunately. The Trustee considers wholly owned businesses an asset of the debtor and will liquidate all non-exempt assets. In your case you have a situation where the business owes you money, the Trustee considers this a 'receivable' and; in my case, 100% of receivables, without deduction for business expenses, belonged to the BK estate as of the filing date. (Pre-petition receiveables, not post-petition). Your situation is complex due to the nature and ownership of your business. You will need to speak to a BK attorney that specializes in business and consumer debt - you do not want to find yourself having to shut down your business as a result of the BK (IMO). Be very careful here.

Here is a link that gives a little glimpse into how the Trustee and the BK estate treat wholly owned corporations (it is slightly off your topic, but it illustrates how the Trustee has complete contol of the debtors wholly owned C-corp):

http://docs.justia.com/cases/federal/district-courts/illinois/ilndce/1:2007cv00385/205593/19/0.pdf

[Flamingo]

Thanks for the replies. Of course I recognize that BOA can close any account at any time for any reason. Obviously, I didn't state my concern very well. My point to them was why even offer to write off 35% of the debt if I am willing to continue making payments on the one cc at the introductory rate and the other at either 18% or a negotiated rate that was somewhat lower? These CC accounts were not non-performing. I have had these cards since '93, '97 and '02 and I have never missed a payment or been late.

It seems to me that there is some connection between BOA's receipt of $25 billion in TARP funds and their desire to force me (and others) into a loan agreement or BK.

Thanks.

While your "point" above makes sense to you, if the banks allowed the accounts to remain open with available credit, it is obvious from your credit reports that you have rising balances and then switch the balance to another account, the balances keep rising and I am assuming you are only making minimum payments. This is a red flag and that is why they would either close your account or cut off any available credit. You are a risk to them inasmuch as you could take the remaining available credit to you to continue to survive until you collapsed just owing more to them when they can cut you off at a lower amount or close your account. Many people are living off credit cards now with layoffs, cut hours, etc. and the credit card companies know it so they are reducing further risk to themselves by closing accounts or lowering limits. Your attempt to "negotiate" with them over the phone also indicated you were having financial problems. While I know this makes it difficult for you, it is happening to almost everyone, even folks with excellent credit who have not used their HELOC in a while and have a large balance available (available credit reduced).

[BROKENN]

I would see an atty OP. I filed and became a C7 non-consumer (or business) due to having a company and consulting.

Trustee wanted the company closed and I lost my consulting business name as collateral damage. We did exempt the cars and our accounts receivables to filing date. At the 341, the trustee wanted to know if we had any other income since filing. He then looked at our schedule and asked if the A/R amount was what we had been living on.

But, some people here say they got to keep their business. I think it depends where the debt lie. Hence, see an atty!