Question What happens if you don't file BK?

[sockmonkey]

In a nutshell:
Business S-corp, tanking. Business debt primarily the note, at appx, 435K, SBA loan. One credit card, about $7,000 balance. Rest of business accounts current. Will be dissolving corp effective January 1, 2013. Bankruptcy primarily to protect personal assets. House not pledged, and we have homestead protection in Texas. Personal bills not behind, personal credit good, spouse has a good job for >20 years. I will have no problem finding a job. Preliminary visit with an attorney means test passed for federal Chapter 7.

Question: what happens if I don't file personal BK? Just walk away from the business/real estate, so to speak, and let it get repossessed? The attorney I visited with said they'll take everything I own. What can they actually physically take or force the sale of? If it goes to SBA as a defaulted loan, what does the SBA, and hence the IRS, usually do?

[TBA]

Hi Sockmonkey,

I am not sure i am qualified to answer all your questions, but i can tell you what happened in our case. We also had an SBA loan with a bank that was secured by commercial property with a lien attached to our primary residence as backup for them (1.58mil or there abouts). We had 5 credit cards that we used for business - only one of which was not in our name personally.

We quit paying on the SBA loan and the CCs well before our BK. Foreclosure was started on the commercial property, and the CC companies were starting to come after us personally (we owed a lot on the CCs - close to 200k between 5 cards). We filed shortly thereafter. The foreclosure continued and the sale was recent for the commercial property. We dont have any equity in our house, so they never started foreclosure process as they are in second and wont get anything out of it anyway. (we are actually looking at new law in fla that will allow us to get rid of this - but that is another story). The SBA was probably the scariest part for me. The CCs would have won judgements against us had we not filed.

We were on time with our cars and our primary house - and carried no other personal debt besides the business debt on the personal CCs. The second house (i kept my house when the hubby and i married as a rental - also used the equity for the business) is in foreclosure and has been for almost two years now. They dont want it - we dont want it. its just sitting there with a freeloading tenant (i am not collecting rent on the property - a bit by my own choice) enjoying the free living quarters.

I think your CCs may be able to come after you if they get judgments and possibly garnish wages - at least that is what i have been told, but i dont have any experience in this. I have also been told that if there is a deficiency when the SBA sells the property, they could come after you for that - or you may also be looking at tax liability if personally guaranteed (i think all SBAs are?). By filing you shave off the personal guarantee and that responsibility. At least, that is what we did. They cannot take taxes from a discharged debt.

I do not know if they can take "everything" you own (do you actually "own" anything?) - i think TX is a lot like FLA, but i would talk to a few more attorneys - take advantage of those free consultations and educate yourself. Find one you like and trust. I interviewed 4 attorneys when first looking - and even passed over the one i use in my day to day business (I am a PI now - she does our probate and bk work) because she didnt have enough knowledge specific to our situation. You should be asking them what experience they have with business debt in a personal bk, ask what experience they have with SBA - That was a biggie for me. We are since looking at doing some more work, and i have interviewed 8 attorneys (mine had a heart attack and is taking a year off - GRRRRRR) with mostly phone consults. I think i have two i am close to liking (like them - not just their answers - because their answers may be wrong - just to get you in the door).

If you have equity in your home, a lien holder may be able to start foreclosure proceedings, but the first mortgage (or first and second... etc) must be satisfied - so it isnt as common to see that happening, but it can happen. Especially if you have enough equity.

Remember that this is a business decision. You have to do what is right for you and your family.

[sockmonkey]

Appreciate your response. Yes, we have some stuff, not a lot, but things that we would like to hang on to. I have always been a pay-on-top-of-the-note person, so my equity is most of my stuff is dominant, excluding my house. So, bad on me for paying ahead in the past few years I guess.

If Trustee is likely to get most of the extra stuff in the BK, what would be the drawbacks to not claiming BK and just taking my chances on judgement? SBA/IRS would be the biggie and I know they have "ways."

[TBA]

If you are determined to be an asset case, why not "buy back" your own assets. We did this using my employer with an advanced payment. Two cars with some equity and a couple of atvs.

Judgments, i dont know. I havent played in that arena. You can always wait it out, and then file bk should they all start coming after you. But i dont know if that is sound advice. i would suggest you approach a few attorneys. Make sure you discuss all of your options - and find an attorney you like - not one that gives you answers you like.

[Pizza]

In a nutshell:
Business S-corp, tanking. Business debt primarily the note, at appx, 435K, SBA loan. One credit card, about $7,000 balance. Rest of business accounts current. Will be dissolving corp effective January 1, 2013. Bankruptcy primarily to protect personal assets. House not pledged, and we have homestead protection in Texas. Personal bills not behind, personal credit good, spouse has a good job for >20 years. I will have no problem finding a job. Preliminary visit with an attorney means test passed for federal Chapter 7.

Question: what happens if I don't file personal BK? Just walk away from the business/real estate, so to speak, and let it get repossessed? The attorney I visited with said they'll take everything I own. What can they actually physically take or force the sale of? If it goes to SBA as a defaulted loan, what does the SBA, and hence the IRS, usually do?

In Texas there is no wage garnishment and judgments are difficult to enforced because of all the personal exemptions. However, you will have a hard time keeping money in the bank because if they get a judgment, they can go after your bank accounts.

[sockmonkey]

In Texas there is no wage garnishment and judgments are difficult to enforced because of all the personal exemptions. However, you will have a hard time keeping money in the bank because if they get a judgment, they can go after your bank accounts.

Appreciate the responses thus far. Although I am in Texas, I would only qualify for the federal BK. And my loan being an SBA (hence Treasury Department), they would garnish my paycheck in a heartbeat, unless yáll know something I don't. Wage garnishment would be the main thing that would make me go ahead and file.

[LadyInTheRed]

Appreciate the responses thus far. Although I am in Texas, I would only qualify for the federal BK.

All BK is federal BK. I think you are probably saying that you will have to use Federal BK exemptions. That has nothing to do with what creditors can collect if you don't file BK. That would be based on state law. But, it is possible there are special rules for SBA Loans that allow them to garnish your paycheck. I tried Googling and found nothing I would rely on enough to cite. But, I did find something that said the IRS can garnish wages in Texas to collect taxes, but found nothing about SBA loans. Ask an attorney in Texas about exceptions to the prohibition on wage garnishment.

[HHM]

You are really asking the wrong question....The question is not, what happens if I don't file BK (the problem with that question is that you seem to harboring some "wrong" assumptions about what happens after BK).

The real question is: Is there any benefit to NOT filing bankruptcy?

In the circumstances you describe, I don't really see ANY benefit to not filing. At a minimum, as you have seen from the answers so far, you will live in a world of uncertainty for the next 4-8 years with the debt. Whereas, if you file BK, in 4 months, you are done with it and can move one.

[btbeme]

SBA = feds. Feds have the power to follow you around for the rest of your natural life and make it... well, uncomfortable. Itchy. Somewhat sleepless. And they can grab things sometimes. Certainly the IRS can, so solve this before it gets to their court.

Now, a BK is your best protection, from a personal standpoint. One you have The Big Forgiveness, you can have a normal life free of garnishments and surprise notices from your SBA guarantor. I'm with HHM - let "them" sell of your business inventory. If your widgets suddenly become valuable property you have the chance to buy them back at a discount. Biggest penalty is not being able to get an SBA loan again for a long time...maybe ever.

For all other readers - notice that sockmonkey did not use his home a SBA collateral. Good move. That's thinking ahead.

[sockmonkey]

Thank you for your input.
If SBA won't do an offer in compromise, then I will look at CH 7 at that time.
Yes, SBA = Feds = Treasury Dept = IRS. They can do almost anything except clobber your kneecaps.

Questions about the Trustee: I realize they are all different, therefore reactions will vary. If I have about 10,000 equity in a piece of property, how does one bargain to get it back if you are not supposed to have much cash? I know payments can be made, but 10K is a lot in a 12mth payoff to a Trustee. If I save up that much before hand, I have to disclose and will not be able to hang on to the cash AND the property.

[HHM]

Let's put it this way.

If you have 10K in equity, you WILL pay that as part of an Offer in Compromise with the SBA. If you do nothing, the SBA will certainly file a lien (if there isn't one already) and eventually grab it and sell it. So, paying a BK trustee is really the least of your worries.