Without the boring details, I am considering filing for bankruptcy due to a failed business venture (restaurant). My father and I owned the venture together, and have both 'personally guaranteed' two large loans. We also own another business (ironically a financial advisory practice).
I live in WV (in case that is relevant to anyone providing input). I am divorced and pay child support (current) for two kids. I currently live with my girlfriend. Everything (utilities, house, cell phone, cable, etc) is in her name. My sole tangible asset is my car (worth 15k-17k, owe 13,500). Other than the business loans, that is my only debt. My credit card is paid in full each month, My car loan is current. My taxes are current (both personally and with the business). My child support is current.
The problem comes from the failed restuarant business. the restuarant owes roughly $600k, $550k of which was personally guaranteed by my father and me. The remainder is to a business credit card, and a supplier. $200k is on an equipment loan, $350 is on the construction and improvement loan. We DO NOT own the building. Our intent is to sell the equipment, inventory, other remaining assets to a third party and bankrupt the company. The proceeds from the equipment will be applied to the equipment note, and the proceeds from the rest will go to pay the supplier.
At the end of the day it will leave my father and I on the hook for $520k of which we have no real way of repaying or making payments given our current income.
So that leaves us with investigating the bankruptcy option, most likely a chapter 13. But i have questions and concerns.
1. As much as I would like to file chapter 7 I don't think I will be so "fortunate." Because I have a "hybrid" pay system (I get a w2 and a k1) I am unsure what will be used to determine my income. Is it my taxable income? My adjusted gross income? My take home pay? I really don't know what to expect here and all will give different answers.
2. Under chapter 13, once a payment plan is determined for the 60 months, what happens if your income increases substantially? Do they make you pay more? Is the amount you owe a fixed amount of flexible depending on what happens to you going forward? Next year I could earn significanly more (improved stock market, no business losses, gaining more clients, etc) I was just curious if that happened if I would be obligated by the trustee to pay that excess towards the obligation set forth.
3. The financial advisory business will continue to operate and be a going concern. One of the things we have to determine is the "value" of this entity. It does have value and it does make a small profit. There are models in our industry used to determine the value of a practice, are those going to be likely accpetable? How is the bankruptcy court going to determine the value or dispute the value we determine it to be? Due to the stock market declines, revenues are way down, and the value of the company is impacted. ALSO, without Dad and I, many of our clients would likely leave, reducing the value further.
4. What value do you use for a car? Private party transaction? trade in value? Auction value?
5. If my understanding is correct, 529 plans (for college savings) are exempt if no contributions have been made in the last two years. Is this an understanding shared by those here?
6. Because all of the utilities at our house are in the name of my girlfriend, am I going to have to demonstrate some type of "proof" of what those expenses are for the court in determining what I can afford to pay? Can you build in some "cushion" to account for inflation (every year, everything you buy costs more!) so I have a little breathing room? Is it "questioned" by the court to see if they are legitimate as long as they appear on the surface to be reasonable?
7. My dad owns our office building, he will likely be filing for chapter 13 as well. There is about $111,000 owed on it, (appraised value of $143k). Is it possible that it can be repossessed in a chapter 13 proceeding?
I may have more questions as I get deeper into this. I have a second meeting with an attourney next week which will probably raise my stress level another three notches.
Thanks.
N
I live in WV (in case that is relevant to anyone providing input). I am divorced and pay child support (current) for two kids. I currently live with my girlfriend. Everything (utilities, house, cell phone, cable, etc) is in her name. My sole tangible asset is my car (worth 15k-17k, owe 13,500). Other than the business loans, that is my only debt. My credit card is paid in full each month, My car loan is current. My taxes are current (both personally and with the business). My child support is current.
The problem comes from the failed restuarant business. the restuarant owes roughly $600k, $550k of which was personally guaranteed by my father and me. The remainder is to a business credit card, and a supplier. $200k is on an equipment loan, $350 is on the construction and improvement loan. We DO NOT own the building. Our intent is to sell the equipment, inventory, other remaining assets to a third party and bankrupt the company. The proceeds from the equipment will be applied to the equipment note, and the proceeds from the rest will go to pay the supplier.
At the end of the day it will leave my father and I on the hook for $520k of which we have no real way of repaying or making payments given our current income.
So that leaves us with investigating the bankruptcy option, most likely a chapter 13. But i have questions and concerns.
1. As much as I would like to file chapter 7 I don't think I will be so "fortunate." Because I have a "hybrid" pay system (I get a w2 and a k1) I am unsure what will be used to determine my income. Is it my taxable income? My adjusted gross income? My take home pay? I really don't know what to expect here and all will give different answers.
2. Under chapter 13, once a payment plan is determined for the 60 months, what happens if your income increases substantially? Do they make you pay more? Is the amount you owe a fixed amount of flexible depending on what happens to you going forward? Next year I could earn significanly more (improved stock market, no business losses, gaining more clients, etc) I was just curious if that happened if I would be obligated by the trustee to pay that excess towards the obligation set forth.
3. The financial advisory business will continue to operate and be a going concern. One of the things we have to determine is the "value" of this entity. It does have value and it does make a small profit. There are models in our industry used to determine the value of a practice, are those going to be likely accpetable? How is the bankruptcy court going to determine the value or dispute the value we determine it to be? Due to the stock market declines, revenues are way down, and the value of the company is impacted. ALSO, without Dad and I, many of our clients would likely leave, reducing the value further.
4. What value do you use for a car? Private party transaction? trade in value? Auction value?
5. If my understanding is correct, 529 plans (for college savings) are exempt if no contributions have been made in the last two years. Is this an understanding shared by those here?
6. Because all of the utilities at our house are in the name of my girlfriend, am I going to have to demonstrate some type of "proof" of what those expenses are for the court in determining what I can afford to pay? Can you build in some "cushion" to account for inflation (every year, everything you buy costs more!) so I have a little breathing room? Is it "questioned" by the court to see if they are legitimate as long as they appear on the surface to be reasonable?
7. My dad owns our office building, he will likely be filing for chapter 13 as well. There is about $111,000 owed on it, (appraised value of $143k). Is it possible that it can be repossessed in a chapter 13 proceeding?
I may have more questions as I get deeper into this. I have a second meeting with an attourney next week which will probably raise my stress level another three notches.
Thanks.
N
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