Please help, I'm so confused!

[joecon916]

Hello, this is a great forum and I consider myself blessed to run across it before making a decision to file for bankruptcy or not. I've spent a lot of time reading all the threads on this forum and still have specific questions that I hope can be answered here.

After 14 years working for the same company, I was strongly "encouraged" to take a severance package (6 months), which ends in July. During the past few months, I did the following:
1) Bought a salon in April from a distressed owner who offered me to make monthly installments, starting in September of $1000 a month for the next 18 months. I did this thinking the salon will do well and not have to find another job. (My wife has salon experience and is running it for the most part).
2) Sold all my stocks and used up a majority of my savings for start up costs.
3) Got a 3 year commercial lease where salon is located for $2k a month. Payments starting in July.
4) Charged about $10K on my personal CC to pay for inventory and other necessities to get salon up and running.

Here's my dilemma:
The salon is LOSING money BIG time (overhead, insurance and payroll). At this rate, I don't see it making any money or even breaking even. I realize buying the salon was a HUGE mistake and I regret it tremendously. When my severance package ends, I will have to apply for unemployment, which maxes out at $450 a week if I get approved. I used to get paid $90K a year, so at $1800 a month (minus taxes) with unemployment, there is no way I can afford most of the things I used to be able to.

I know for a fact I will not be able to pay the landlord the rent nor will I be able to pay the previous owner back. I am considering filing chapter 7 and hope to get my CC's, the lease and the amount I owe the previous owner all discharged.

My questions are:
1) Can I sell the assets of the salon (Washer/Dryer, TVs, Shampoo bowls, Salon Chairs, Inventory) and keep the cash?
2) If I do sell the assets, instead of keeping the cash, can I give the money to the previous owner to pay him what I owe? Is that considered preferential treatment?
3) Will filing chapter 7 exonerate me from the money I owe the previous owner and my lease contract with the landlord?
4) Will the money I owe to the CC companies also be dismissed?

I also understand that I need to stop using my CC's and any luxury purchases may cause my case to be dismissed, but is buying groceries, car repairs and gas OK? I was told I need to save as much cash as I can use the cards for necessities. Is that true or are any purchases on the CC can be a cause for an investigation?

I live in California and have a house which is worth over $100K less than what I owe and will also default on the mortgage. I have 2 paid off cars, which I will exempt and a commuter car I am paying $220 a month, which I want to reaffirm the loan on (living in San Francisco Bay Area, I might find a job that will require over 100 mile commute a day).

Sorry for the long post and I appreciate all suggestions, comments and information.

[NewPage]

I'm by no means experienced or an expert, but wanted to reply in some way.

4) Will the money I owe to the CC companies also be dismissed?

Yes, I would say so. Are you wondering because you purchased items for the business?

I also understand that I need to stop using my CC's and any luxury purchases may cause my case to be dismissed, but is buying groceries, car repairs and gas OK? I was told I need to save as much cash as I can use the cards for necessities. Is that true or are any purchases on the CC can be a cause for an investigation?

I have been told, and read other posts that say purchasing necessities is quite different than say buying a TV or going on vacation. What you would need to do though is let purchases age (90 days is the general amount of time I've seen recommended), AND you need to pay on any card you charge on at least for a few months after your last charge. For instance, I needed to use a card for my health insurance premium -- I am still making payments to that one.

Now whether that is correct or not I don't know, so please take it with a grain of salt!

2) If I do sell the assets, instead of keeping the cash, can I give the money to the previous owner to pay him what I owe? Is that considered preferential treatment?

Yes, I would be concerned about this, personally.

Definitely consult with several attorneys. Good luck!

[joecon916]

Thank you, NewPage for the response. What if I can't afford to pay the minimums on the credit cards I used? Will it be OK to send partial payments or is that just as bad as not paying at all and not even worth making partial payments? I am thinking about calling the CC companies and let them know my situation, I am not sure if that'll help, but perhaps worth a shot?

[freeatlast98]

I've been speaking to the cc companies lately and I think because things are so bad economically now, they tend to just want you to send something rather than nothing. It also depends on the creditor. So far, Discover, Chase & BofA have just wanted me to send them something. However they ALL ask for your bank account number to give you a workout plan. From what I've read on this forum,it's a BIG mistake to give them your bank account number..

[NewPage]

Thank you, NewPage for the response. What if I can't afford to pay the minimums on the credit cards I used? Will it be OK to send partial payments or is that just as bad as not paying at all and not even worth making partial payments? I am thinking about calling the CC companies and let them know my situation, I am not sure if that'll help, but perhaps worth a shot?

Well, again from what I've seen here, they're not interested unless you pay all.

You might try calling a hardship dept. I had success with Chase, but ultimately couldn't keep that up. I wish I'd known about the hardship thing way before last January.

http://www.needhelppayingbills.com/html/information_on_credit_card_com.html

[keepmine]

If, bk is the end game stop paying all debt you are going to discharge. That's just money down a rathole. Use the minimum payments you were making to the cc's for hh expenses.
Yes, you can sell the inventory and equipment. Use that money for normal living expenses. Don't hide cash. If your lawyer says the cash can't be exempted then, spend it down prior to filing.
And, don't pay the orginal owner. That will be a preference issuie and the trustee can sue him/her to get the funds returned.
You really need to stop using those cards period. When you file bk, your going to lose access to all cards anyway. You need to learn to live on a cash basis. If you still can't make ends meet you got a problem bk can't fix. Remember, you still have to support yourself post bk and you need to plan for that even as you start the bk process.
Most bk lawyers will give a free or lowcost initial consultation. Speak with a few and see what they say.

[StartingOver08]

Do you have the salon in a corp or do you run it as a sole prop?

Was the purchase of the business and the equip with personal funds or did you obtain a business loan of any sort?

When you purchased the business it sounds like an installment sale. Do you have a written agreement with the seller of the salon?

[joecon916]

"Do you have the salon in a corp or do you run it as a sole prop?"
The salon is a sole proprietorship

"Was the purchase of the business and the equip with personal funds or did you obtain a business loan of any sort?"
It was an asset purchase and I did not take out any business loans. I used money from my savings and sold stocks for the initial investment. I used credit cards to buy inventory and additional equipment.

"When you purchased the business it sounds like an installment sale. Do you have a written agreement with the seller of the salon?"
Yes, it is an installment agreement with the previous owner, in which I gave $5K in cash and will pay the remaining balance due in monthly installments. Also, we do have a written agreement.

As far as credit cards, I know I NEED to stop using them and I should stop making minimum payments since I will eventually file for BK. But what if I need to use it for groceries, gas and car repairs, will that be an issue (not a luxury expense, but a living expense)?

Thanks again for the help!

[keepmine]

But what if I need to use it for groceries, gas and car repairs, will that be an issue (not a luxury expense, but a living expense)?

Those are not luxury purchases.
That's not the issue. You will still need food and gas and car repairs post bk. How are you going to pay for them post bk? Point is, stop paying minimums on the cards and develop a liveable budget. If you can't do that, bk isn't going to be of much help to you.