Advice to stop paying on CCs...Pros/Cons?

[BKDefender]

I am inclined to agree with what your attorney told you. Anything in a 401k is exempt on the date of filing a chapter 7, so if you withdraw it you can do with it as you please. If you withdraw it before filing and it's in a bank account that had other non-exempt money then it's open game for the trustee to grab.

Regarding the money in the business bank account though - if it is legitimately money that only the business could use and it is in an account under the legal name of the business, and the business has debts or liabilities that exceed the money in the account then the business has no excess value and would not an asset. The trustee can't just take an asset of a business to pay the personal debts of the owner, the trustee generally can only do what you could do yourself - he'll have to wind down the business. Most state's have statutes governing how a business is wound down to avoid personal liability of its owners. Generally, one of the first steps is the business must use all of its assets to pay all of its liabilities first, then if anything is left, the business owners get to keep it (or in this case the trustee.) So if you owe payroll to employees, and you owe sales tax or payroll tax, or you have a lease, then the trustee can't just take the money - he has to follow the wind-down statutes to close or sell the business which would probably leave little, if any, excess money.

Now - if the trustee thinks the business is worth money even if you two don't participate in the business, i.e. a new person doing your jobs could service those customers and make money, then the trustee could deem it an asset and sell the business to someone else and use the proceeds from that. But if you don't have any contracts that guarantee income, and the clients are friends of yours who use you because they like you personally, then I don't see that happening either.

--William

[Overmihead]

I am inclined to agree with what your attorney told you. Anything in a 401k is exempt on the date of filing a chapter 7, so if you withdraw it you can do with it as you please. If you withdraw it before filing and it's in a bank account that had other non-exempt money then it's open game for the trustee to grab.

Regarding the money in the business bank account though - if it is legitimately money that only the business could use and it is in an account under the legal name of the business Yes, it is. It's nothing we can touch for any personal needs., and the business has debts or liabilities that exceed the money in the accountCurrently, the amount in there is probably three times the amount they owe on the (small) business loan they have. It is approximately enough for two months of payroll and expenses (not including the amount owed on the loan). There is always some job/contract pending payment, but when the clients will actually pay up is anybody's guess. They have one client who has owed for over 6 months, but just can't pay yet because they are waiting for payment from further up the chain. And this is not a situation where they can pursue action against said client because all of their business relationships are very tightly linked and right now everyone is expected to sit tight and be patient. Anyway though, back to the BK, I don't know what effect these pending contracts will have on how the trustee views the value of the business. As I said, if they reached in and took anything, it would be the end of the company. then the business has no excess value and would not an asset. The trustee can't just take an asset of a business to pay the personal debts of the owner, the trustee generally can only do what you could do yourself - he'll have to wind down the businessNot sure what you mean by "winding down"? They have cut every corner that can be cut in order to remain in business (which is why we're in this situation...a drastic salary cut). It is a direct result of the economy, and has been devastating to us, but we also know it is temporary and the business has a bright future.. Most state's have statutes governing how a business is wound down to avoid personal liability of its owners. Generally, one of the first steps is the business must use all of its assets to pay all of its liabilities first, then if anything is left, the business owners get to keep it (or in this case the trustee.) So if you owe payroll to employees, and you owe sales tax or payroll tax, or you have a lease, then the trustee can't just take the money - he has to follow the wind-down statutes to close or sell the business which would probably leave little, if any, excess money.

Now - if the trustee thinks the business is worth money even if you two don't participate in the businessNo, without DH and partner, it would not be worth anything. It is their specific skillset/expertise that makes the business., i.e. a new person doing your jobs could service those customers and make money, then the trustee could deem it an asset and sell the business to someone else and use the proceeds from that. But if you don't have any contracts that guarantee income, and the clients are friends of yours who use you because they like you personallyYes, it's all pretty tightly knit. Their clients would not use anybody they didn't have a relationship with., then I don't see that happening either.

Thanks, William!

--William

Any further input appreciated. :-)