Should my dad file bankruptcy?

[Liguidsoul]

This is a long and complicated situation. I don't know anything about bankruptcy but I'm trying to help my dad. I realize he may need an attorney, but before hiring one I thought I would seek your advice.

We live in Michigan. My dad owns a restaurant that has gone very bad due to the recession, sales are very low and he owes a lot of money that he cannot afford to pay. He is an honest business man, but the economic situation has really hit hard on a lot of businesses. Here is what my dad owns and the debts he owes.

Company ABC, Inc. (Restaurant)
- Building is just rented / leased (no ownership)
- Have a liquor license worth about $25k
- Have equipment in the building worth about $25k.

Company ABC, Inc. - Debt
Visa card for $20k
Visa card for $10k
MasterCard for $10k
Currently have unpaid Michigan sales tax for about $40,000.
No other debts.
(SALES ARE VERY SLOW. HARDLY PAYING THE BILLS)

My father also owns a commercial real estate property. He owns 50% and his partner owns the other 50%. They bought it several years ago for $150,000. It's fully paid and has NO DEBTS. It's registered to a corporation that my father and his partner created. (We'll call it Company DEF, Inc.) My father owes his partner $25,000 (personal loan he gave him when he started getting late on bills... bot not on paper).

My father also had a restaurant that closed in 2008. We'll call it Company GHI, Inc. The company never filed bankruptcy, and all of its bills were fully paid except for the following.
Visa card for $20k
Visa card for $10k
Line of Credit for $50k
Bank SBA loan for $50k

My father also has personal loans.
Visa card for $20k
Discover card for $6k
Mastercard for $2k

My father also owns a house (my mother is a co-signer on this loan). The house is probably worth $170k, and the mortgage is for about $180k. Technically, we don't own any equity in this house. (It was almost fully paid when he had to refinance when the businesses started doing poorly).

Based on all of this information, it's obvious that my father's restaurant will not make enough money to pay these bills. He's too behind and sales are just too slow. He's a very honest person that has always had money and created a good fortune, but everything has come to an end.

What should he do? The only property he really owns is the commercial real estate building with his partner (50% ownership, $150k value). Is there any way to protect this?

Should he file bankruptcy? What about the $40,000 sales tax he owes? What would you do? I wish I could help him but I don't make enough money. Please help.

[Liguidsoul]

By the way, on all 10 of these loans / credit cards, NONE of them are in default. My father is still paying the minimums on everything every month. But obviously he will not be able to pay them off any longer.

The only thing really in "default" is the $40,000 in Michigan sales tax.

[keepmine]

My guess is, he needs to try and sell his half of the commerical property and use the proceeds to pay the Mi. sales tax debt. That's a prioity debt that won't be discharged in bk. Then, spend down whatever is left.
If he files bk and still has ownership in the commerical property that will be property of the bk estate. The trustee will try and force the sale and use the proceeds to pay unsecured creditors and your Dad will still be on the hook for the sales tax.
You're right, get your Dad to a lawyer.

[Liguidsoul]

Ok. Would he have to sell the commercial property at market value or can he just give it to his partner or sell it for a smaller amount? We don't want to do anything wrong. If it must be sold at market value, how do we determine that? He does owe his partner $25,000 from personal loan... so maybe he can deduct that amount from the sale.

Does he have to file bankruptcy? What if he stops paying all these cards but never files bankruptcy? Is bankruptcy beneficial?

[dscurlock]

I think even tax bills can be settled to some degree. seems like this case would be complex in itself since he has a partner that owns 50% of a company. he surely needs an attorney. If you do not want anything to go wrong, then have your dad seek
legal advice, it is his decision in the end on what he wants to do.

[eddiep]

That is such a sad story, he must be sooo stressed out! He is lucky to have you looking out for him. I just hate to hear of small business owners being forced out because of the economy. His case sounds very complicated and there is a lot at stake here, you definately need to sit down with an attorney, the first consultation is usually free and he would not be obligated to hire the attorney or file. But he needs facts before he makes this move and one of the problems with bk is there are a lot of gray areas. It does sound like he has no choice but to file at this point. An attorney will look out for your dad's best interest and will be able to advise him of what he can and can't do. The last thing you would want to do is make a bad decision that would jepordize his bk case. Selling the property might be ok but paying his partner $25k is a HUGE no no just before filing. The bk trustee would force his partner to give the money back and would split it up amongst his other creditors. That is insider payment and he may be better off paying the past due taxes. Talk to a lawyer ASAP!

[DeadManCrawling]

You MUST hire an attorney for this, no question. There are too many things that can go wrong with businesses, partners, business debt and personal debt all intertwined.

My first thought is that selling his share of the commercial property to pay down the state tax is probably a good idea. Ask the attorney first though.

Market value becomes subjective in this economy, especially in Michigan. The law says that a fraud occurs if fair value wasn't received for the property. Fair value is totally up in the air with current market conditions. Ask your attorney, but I suspect that a property might be sold for 30-40% of what it was valued at previously. This may help both your father and business partner by allowing the partner to take over the place at a price he can afford and get your father some cash from an asset that might otherwise be unsaleable.

Please do get your attorney and run all this by him as none of us here can offer legal advice, only opinions, and opinions will NOT win the day for this situation.

[falken]

The back sales tax is going to be a biggie. That sales tax was not his property nor the property of the business to be able to spend and not remit.

It will not be discharged in bankrupctcy and will be collected upon from the corporations officers. You should be able to make it a priority debt in a chapter 13 bankruptcy, but that means he is going to need at least a $700/mo payment on top of any secured property he wishes to keep.

Edit: Just saw he may be able to sell things to pay the tax debt. That may be the best option. Like everyone else said, get to a good lawyer asap to go over all your options.