Attorney said we don't qualify for 7, would fail miserably out of 13...what now!?

[gava1910]

Sigh. So after finally coming to terms with having to file, it's not looking like we will be able to. And I am so confused. My husband is an LLC contractor, it's just him, and he makes good money. But the thing is, although a ton of money goes through his account, it is usually mostly for materials, other sub contractors, etc. sure, a portion we pay ourselves, but in no way is it "income." he just got a check for $40,000 which is a deposit for a job that he will be doing in July. We can't touch that money because he needs to use it to get everything for the job. But according to our attorney, the trustee would look at that as disposable income no matter who we owe it to and take it to pay our unsecured creditors. It is US personally that want to file, not his business, so how does that count? This is money in his LLC checking and not our personal account.

Since our income is high, but erratic, we are being told it would be a nightmare to even try ch 13. We are caught up on cars and only 1 month behind on mortgage, so that's not a huge issue. We got about a month behind on bills, which for us is devastating since that is about $8,000. My husband has a lot of work, but needs to catch his business up because we stupidly used someone's material money for our bills and now have to make that up, and thus not pay ourselves. Attorney suggested we just pay on the one CC we owe jointly, and stop paying all the others, and deal with the judgements as they come. We are in PA, recently built our own home, have two car payments, and no other real assets. Any ideas welcome. TIA

[LadyInTheRed]

Talk to more attorneys, preferably attorneys with experience filing BK for people with business interests. A good attorney should be able to help you plan your BK so that you either qualify for a Chap 7 or get a Chap 13 plan that you can live with.

Your husband's income from the LLC should be based on the income he receives from the LLC, not the gross receipts of the LLC. The fact that your husband is using LLC money to pay personal expenses could be problem if the trustee decides to "pierce the corporate veil". That could make the $40,000 income for purposes of the means test, in which case you would want to wait to file BK until the income less expenses in the 6 month look back is low enough to qualify for Chap 13. So, if he is going to spending a large portion of that $40,000 to do the contract work in July, it may be that you could qualify for Chap 7 in August. Or, you may have to wait a while longer if the job is very profitable.

Another thing to consider is whether you can exempt the value of the LLC. A debtor's interest in an LLC should be valued based on what somebody would pay for his interest. That may simply be assets less liabilities. But there could also be a good will element if the business has goodwill that would remain if your husband wasn't involved. If it has $40K in cash but an obligation to perform on a contract, that contractual obligation would reduce the value of the LLC. But, I would assume that part of that $40K will be profit. So, you still may need to time a BK filing and file when its value will be low. Or, if you do file a Chap 13 and you can't exempt the value of the LLC, you would just need to pay an amount equal to the non exempt value to your unsecured creditors during the life of the plan.

As far as erratic income, you would need to budget and save money in high income months to get you through the low income months. This is something you should be doing anyway and should not be a reason to scare you away from a Chap 13. Even a Chap 7 won't help in the long run if you can't budget to get through the low income months.

[bcohen]

You live in a state where wages cannot be garnished, however creditors can aggressively go after personal property (and this board is full of examples where creditors have done just that) so you need to tread carefully. It should be possible to shield business funds and business assets (tools and equipment, etc.) from a judgment against you personally, and with the help of a competent attorney, it should be possible to protect your business if a personal bankruptcy should be necessary. Unfortunately, the fact that you have comingled your personal funds with the business's funds will definitely complicate things, and could allow an aggressive judgment creditor to pierce the LLC and collect against the business. You will need a very skilled attorney who is familiar with protecting business assets, and filing personal bankruptcy on behalf of a business owner with an ongoing business enterprise.