Not Sure if BK is the Right Strategy--Need Advice

[netrover]

My business has been in a downward spiral for over a year due to the downturn in the economy, but I was still able to turn a small profit in the last 12 months. However, this month will be my first one in the red, and I do not have enough cash on hand to keep it going. All indicators suggest that revenue will continue to remain flat in this market. In essence, it's like being in a coma, and I need to break free.

My biggest concern is that I have a little over three years left in a commercial office lease I signed (owe about $169,000). I want to walk away, but I feel there is a very good chance my landlord will come after me. They have refused several pleas for rent reduction already (I am currently paying over $10 per square foot above market). I also have about $25,000 in business credit card debt. I recently opened a $10,000 line of credit with my bank, Wells Fargo for an emergency fund, but have not drawn from it yet, as I'm trying to hang on.

I think if I move to a smaller space I can turn a profit. Right now my office space is costing me $4,700 a month; June revenue will be less than that.

I am paying mortgage on a home with my wife, who still has good credit. We have two cars that are paid for (I think these are exempt assets in CA). We can scrape by on my wife's income alone but it is pushing it (mortgage is $4,300/month). It would be nice to have my credit card debt discharged, and not have to worry about my landlord coming after me. Since we already own a home and two cars, I can handle a hit to my credit score.

What would you do? I am leaning towards Chapter 7, but want to plan the timing right. Should I stop paying my CCs and rent now? Will my landlord change the locks on my office if I do so? It will probably affect my ability to rent out a smaller space.

Thanks.

[JackBondLove]

Wow, house note of $4300!

I would carefully pack up the most important items in the office every day, just in case the office gets padlocked. I would also make an accounting of everything in that office (take pictures, have a dossier of purchases, etc.) so that if you do get padlocked and file for BK, that you can say this is what you had in the office. Then the trustee can get on the landlord's azz if any of it would be missing.

As for the BK itself, you sound a lot like I was, although as a software consultant, I did not have to maintain an expensive office. I did have to find paying clients, but they just disappeared. As things started to circle the drain, I looked at my free cash situation to determine how long I had before I had no more cash to support my debt and living expenses, as well as my asset plan. I valued some of my assets at old prices (which was a mistake, but I thought that even in this environment, my assets could not be worth that little!) and came up with an extra $20K. Thinking I needed a $10K cushion, I determined that I had about 2 months of living expenses and debt service left. If I did not find a client in those 2 months, that was it - I would be out of cash.

I then started to look at the positive benefits of BK, and realized that I could be in a much, much better position by going through a Chapter 7. I would be giving up a really nice government disaster loan for a house (@ 2.7%!) but I would be coming out so much farther ahead with Chapter 7, that I decided to throw in the towel, take my time, temporarily relocate to a winter sports area (since I was living in hotels, that was no extra expense), and arrange my affairs in March (which I did, and I sit here 3 months later discharged!) Best move I ever did.

Now of course, since my consultancy doesn't cost anything, I wouldn't need to have good credit to get loans to restart it, something that would be a concern for you. What you need to do is to sit down and see what you would lose either way in a personal BK filing. Your liabilities to the business add an interesting wrinkle that perhaps a consultation with a BK lawyer could help with.

[netrover]

Wow, house note of $4300!

Thanks JackBondLove. Yep, $4300/mo. is typical for a SF Bay Area home.

My business involves treating patients, so I wonder if that will prevent my landlord from locking me out, as it would affect their care.

Why did you have to give up your home at your BK?

[RuthCB]

My only advise is don't hang on too long hoping things will get better. I wish I had made the decision many months earlier.

I do wonder what to do with the meager "assets" I had to pack up and store.
My business did require much in the way of equipment. I have a LOC with Bank of America secured on the assets of the business.... but I am in negative numbers. I wonder if they want to come after my 30 year old desk and the five trash cans I have.
LOL.. Oh well, I think my states laws say you have to pay the shareholders first and since the business owes me as 100% shareholder about $15,000 I loaned it, I think Bank of America is S.O.L.

[ryan]

Yes, you have a lot to think about.
At least in my area there are quite a few commercial landlords suing for balances on leases. Some even bigger numbers than yours. For that amount its probably worth it for the landlord to sue or at demand some kind of settlement/buy out.
You might want to stop paying on the CC's and accumulate cash for the deposit on a new cheaper lease space.

[JackBondLove]

Why did you have to give up your home at your BK?

I had more equity that the exemption. It was only a very small amount, so I just came up with the cash (from an IRA) to buy the home back.