Individual debtor filing non-consumer chapter 7; question about "20. Inventories"

[Lalalink]

Filing as an individual debtor in a non-consumer chapter 7 case (failed business). Do we list the business's inventory information (item 20 on Statement of Financial Affairs), or do we leave this blank since we are not in possession of the inventory as individuals.

Asked another way:
Failed business is still being "run" by brother-in-law in FL. We are not in FL and do not own or have possession of any inventory from the business. We are filing as individuals a non-consumer Chapter 7 case. So although it looks like we do fill in "19. Books, records and financial statements" (according to the instructions), I'm not clear on "20. Inventories".

As we are filing as individuals (not as a partnership or corporation), it looks like we also skip items 21-25 on the Statement of Financial Affairs.

Sorry so long; just trying to be as clear as possible.

I thank anyone for advice or "been-there-done-thats."

Lala

[HHM]

First, the more troubling question is why are you are even asking such a specific question. If you have an interest in a business and are attempting a non-consumer 7, you NEED an attorney. That is not the type of case you should be filing pro se (without an attorney)

Okay, onto the issues.

Correct, you would skip questions 21-25 as those are only completed when the debtor is, itself a partnership, LLC, corp. etc.

Question 20 is a little more tricky. But the real issue is how you disclose the business on Schedule B. You WILL disclose your ownership interest in the business (debtor has x shares, or debtor is x% owner in xyz LLC etc). Then you need to go on and disclose the assets of the business and YOUR interest in those assets, then put explanatory notes. The fact that the business is still running seriously complicates your BK. If the company has any value or has anything that can be sold, realize the trustee steps into your shoes, so whatever rights you have as a shareholder/owner, the trustee inherits. Now, if you can do very little, then perhaps no problem, but it is not beyond the realm of possibility that the trustee hold the company hostage to get some money.

[Lalalink]

Well, really filing pro-se as I can't see what a lawyer would do for us that we cannot do for ourselves. True, a competent lawyer would be able to fill in all the right blanks/fields/forms. However, we've already done all the leg-work (compiling all of our financials). She would just be plugging in the data we give her into "Best Case" (literally, we checked!).

We have also plugged in all the numbers and info into our copy of Best Case. There are only a few questions we have about filling out some of the fields. She wants $3,500.00 to $5,000 to do this?

Yes, she would be worth this amount if we were completely blind, didn't have this forum, didn't have the NOLO book, and didn't have Best Case software.

I understand the Trustee will be standing in our shoes. It was my assumption (with the data given below) that he too would walk away and leave the business alone and let us "individuals" get on with our new lives. Although one should never assume, what do you think?

Info from XYZ C-Corp 2010 Financial Report (P/L):

Net Cash Flow $2,716.45
Net Income (-$30,150.53)

Balance Sheet for 2010:
Cuirrent Assets:

Checking Account $ 12,533.89
Inventory $ 99,506.84
Accounts Receivable $ 18,185.07
Vehicles/ Equipment $ 17,655.16
Depreciation (-$ 17,655.16)
Security Deposits $ 0.00

Total Assets: $ 130,225.80

Liabilities:

Accounts Payable $ 389,535.08
Loans from Stockholders $ 27,361.65 (From another 25% interest holder of C-Corp)
Net Income $ (-30,150.53)
Shareholders' Equity $(-256,520.41)

Total Liabilities $ 130,225.80

We are not filing pro-se lightly; and I agree, it is not for most filers.

Lala

[Lalalink]

Question 20 is a little more tricky. But the real issue is how you disclose the business on Schedule B.

Only filled in item 13 on the Schedule B as:
25% interest in XYZ Corp (Husband) : Location (Florida address of business): Market Value $0.
25% interest in XYZ Corp (Wife): Location (Florida address of business): Market Value $0.

Then you need to go on and disclose the assets of the business and YOUR interest in those assets, then put explanatory notes. The fact that the business is still running seriously complicates your BK.

THIS we did not do. We have no interest in any of the assets. The assets belong to the C-Corp, including the vehicles (titled under corporations name); checking account is business account under C-Corps name; inventory is sitting in the store on display (furniture store); we have no interest in the Accounts Receivable.

Do you think we should list them anyway, given that we will be putting 0% interest in these assets?

Again, thank you so much for your replies.

Lala
Note: Together my husband's and my total ownership of the C-Corp is 50%. Although for us, the business is not worth saving (we've walked away, moved to a different state and found gainful employment), the other half owners of the C-Corp have no abilities to earn a living without the business. Their only hope is for the business to turn around; they have no dependents and are able to "hang on." We on the other hand have run through $250,000 in our own savings and started dipping into our 401(k)'s due to this defunct (in our opinion) business and could no longer hang on. That is why we walked away last year.

[justbroke]

First, let me just start with saying that I did a non-consumer Chapter 7... a conversion at that!!! As for your specific issues... if you actually have any ownership of a business, no matter how small... I would never ever recommend doing this pro se. You indicate that you have inventory as well? Be very careful when you proceed. The Trustee will be very quick to make this an asset case and to look at liquidating the assets of the business. Unless this is a real "corporation" and you own no shares... the Trustee can get to the assets pretty easily.

You have a real JUICY asset! The Trustee couldn't care less that the "business" owes creditors! The Trustee will make money liquidating the business.

You REALLY need an attorney for this or you may leave your brother in a really bad position. I'm drooling myself at the assets.

[Lalalink]

Unless this is a real "corporation" and you own no shares... the Trustee can get to the assets pretty easily.

It is a registered C-Corp. We own 50% interest in the business and have 50% voting rights. Standing in our shoes, the Trustee would not have a majority vote, so he could not win a vote to dissolve the corporation. The business owns 100% of the assets; unfortunately, we also thought the c-corp owned all the debt. Didn't realize hubby had personally guaranteed the business credit cards. Filing as individuals aren't we considered separate entity's (business is not filing ch. 7; yet!). In what manner can the Trustee take the C-Corps assets? What am I missing?

oh and thank you for talking this out with me

[Lalalink]

You REALLY need an attorney for this or you may leave your brother in a really bad position. I'm drooling myself at the assets.

We are still not happy with my husband's much older brother; his alcoholism drove away business. I have a heart, so we did give him the name of a highly recommended bankruptcy attorney who specializes in Ch. 7's for businesses. He just doesn't see that there is NO MONEY in the business and it is bleeding. He isn't even able to pay himself a salary!

[HHM]

It is a registered C-Corp. We own 50% interest in the business and have 50% voting rights. Standing in our shoes, the Trustee would not have a majority vote, so he could not win a vote to dissolve the corporation. The business owns 100% of the assets; unfortunately, we also thought the c-corp owned all the debt. Didn't realize hubby had personally guaranteed the business credit cards. Filing as individuals aren't we considered separate entity's (business is not filing ch. 7; yet!). In what manner can the Trustee take the C-Corps assets? What am I missing?

oh and thank you for talking this out with me

That is the FATAL assumption every novice makes when going into BK. Yes, the business is a separate entity, but as 50% owner, you OWN (in a legal sense) 50% of the assets. There is NO protection for those assets...here is what the trustee will do. He will say, you own 50% of those assets, they are worth $x, pay me. If you don't pay, he can keep your BK open and possibly dismiss your case.

Well, really filing pro-se as I can't see what a lawyer would do for us that we cannot do for ourselves. True, a competent lawyer would be able to fill in all the right blanks/fields/forms. However, we've already done all the leg-work (compiling all of our financials). She would just be plugging in the data we give her into "Best Case" (literally, we checked!).

What you NEED to do is get yourself an attorney. As you are finding out, BK is far more complex than plugging in numbers, your attorney will cost you far less than if you file this BK and it gets screwed up. I see it all the time, arrogant business owners and individuals (and novice attorneys) thinking they know stuff, and don't, and their BK ends up costing them ten's of thousands of dollars in lost assets, where an investment of $3-6K in an experienced BK attorney would have saved them tons of money. With the numbers you are throwing around for the business, that is sweet candy for the trustee, and that business is toast, or your BK is toast.

[Lalalink]

That is the FATAL assumption every novice makes when going into BK. Yes, the business is a separate entity, but as 50% owner, you OWN (in a legal sense 50% of the assets). There is NO protection for those assets...here is what the trustee will do. He will say, you own 50% of those assets, they are worth $x, pay me. If you don't pay, he can keep your BK open and possible dismiss your case.



What you NEED to do is get yourself an attorney. As you are finding out, BK is far more complex than plugging in numbers, your attorney will cost you far less than if you file this BK and it gets screwed up. I see all the time, arrogant business owners and individuals thinking they know stuff, and don't, and their BK ends up costing them ten's of thousands of dollars in lost assets, where an investment of $3-6K in an experienced BK attorney would have saved them tons of money. With the numbers you are throwing around for the business, that is sweet candy for the trustee, and that business is toast, or your BK is toast.

I'm sorry. I did not mean to come across as arrogant. I thought this forum was for asking questions and getting answers. I thought my questions were thoughtful and would be helpful to others as they navigate through their own financial crisises.

So, are you saying a competent attorney would be able to avoid having us "pay for the assets" (that we were not able to exempt?). The attorney we met with regarding this complicated matter, said we could EASILY do the no-asset/non-consumer/ch.7 bankruptcy. She did say there "may" be ramifications to the other 50% owners keeping the business and thus gave us the name of an attorney for them; but she also said it is more likely the Trustee will leave them alone. So do you think we should seek another attorney then?

For myself and others, would you mind expounding on your answers. Real-life examples are very difficult to find. As you can see, there is some sort of interest in this thread by others.

In reality the two delivery trucks are more than 20 years old, have no A/C (not a positive in FL), and have more than 300,000 miles on them. Four years ago when we tried to sell one at market value $1500, it was on the market for over a year and never sold. There is only the inventory. So you are saying we should kiss 1/2 of that away as "there is NO protection for those assets." If this is true, how could involving a lawyer any further help us out?

I can ask questions and get the forms filled out correctly. We won't be hiding anything. I just want to be prepared. And I'm shocked to discover that you are saying we will be an asset case b/c of the business' assets; when our lawyer clearly told us differently.

We WILL be seeking the advice of another attorney now. But some more "enlightenment" would be helpful for me and others.

Thank you so much for your time. And again, I'm sorry for appearing arrogant; that certainly was not my intent. Education is my intent. I'm a person who likes to know EVERYTHING, unfortunately and obviously it is also a flaw.

Lala

[HHM]

The strategies are situation specific and too difficult to explain here. The point is, you need a good attorney to advise you about your options. Maybe BK-7 is not the right choice, maybe with some asset planning you can still do a BK, maybe with a proper valuation and an aggressive attorney, this is a moot point, maybe you need to restructure the company, etc.

The problem, the questions you are asking are beyond the answer this, or any, forum can provide. You need to get an attorney, on the ground, to help you.

[justbroke]

Thank you so much for your time. And again, I'm sorry for appearing arrogant; that certainly was not my intent. Education is my intent. I'm a person who likes to know EVERYTHING, unfortunately and obviously it is also a flaw.

We don't just say "go see an attorney" lightly. We are actually here to help and I'm am certainly here to help as many pro se debtors that I can. However, when a case which appears, from the limited information that we would ever have about your District, your business, your partners, etc... to be choc-full of assets, I will certainly steer the conversation towards representations. I actually don't like saying "see an attorney" because I think that many "no asset" cases can be dealt with.

Your initial attorney consult shows me one thing. That the attorney is suggesting that you just handle this for "yourself" and not worry about the impact on the business. I am saying the same thing. If you don't care what happens to the business, then go right ahead. However, as HHM suggests, you could run into some snags when the Trustee tries to get to the assets of the business when s/he steps into your shoes and administers the Estate.

The fact is, you are an asset case. You have assets which you just clearly listed. The attorney was "guessing" that the Trustee would not want to business "asset", and is assuming that would keep you a no asset case. I would consult with 3-5 more "business" savvy bankruptcy attorneys that have done business cases (whether Chapter 7 or 11). It's a much different ball game when you're filing, as a consumer or non-consumer, and have an operating business with a significant inventory or other assets.

I, for one, appreciate your gusto. However, I'm conservative and cautious and like to prepare for every scenario. Could you at least consult a few more bankruptcy attorneys that specialize in business ownership cases (sole prop, s-corp, LLC, partnership)? If they all say "no asset" after you give them the details of that inventory and other assets and your 50% ownership... then I will always say to go with the advice. I just think that you need to hear from more attorneys on this subject area.

[Lalalink]

The problem, the questions you are asking are beyond the answer this, or any, forum can provide. You need to get an attorney, on the ground, to help you.

You've talked me down. We will not be filing pro-se now. And I'll keep y'all updated on how this turns out, so that we will have a "specifics" that can be on record on at least this forum. Thank you so much for your patience (and persistence). I'm feeling a little more relief now that we will hand this over to a lawyer.

Lala

[HHM]

That is good

I don't "like" giving the advice, go see an attorney, but sometimes it is the best advice to give. Trust me, I have over 12,000 posts, they don't all say, see an attorney

The thing is, until you came here, you didn't even know you were in a high risk bankruptcy. That is the real problem with pro se, what you don't know is dangerous; but you don't even know that you don't know

In any event, as Justbroke points out, if you don't care what happens to the business, then it doesn't matter. But, if you want the business to sustain, then you are in the realm of a really complex case. You are correct the "bankruptcy" itself, is actually simple, it is the planning and preparation to achieve the goal you want to achieve that is the challenge and that is where a good attorney is worth every dollar. Especially if you find an attorney that will stand by their work in BK court (realize, most attorneys limit their representation and will not handle contested matters...that is, challenges by trustees, creditors etc.; attorneys that do that basically file the petition and leave you on your own or charge you more if any issues arise). So, you will probably need to shell out some cash, but it may be worth it in the end.

Maybe there is no issue, we don't have all the facts, we have scant information, but the information raises serious red flags.

[Lalalink]

You guys ROCK! Seriously! Thank you for these follow-up posts. I REALLY don't care what happens to the business, but I'm sure my husband does (it is his brother afterall). And I did NOT realize we were in a high risk and complex case. So I'm glad I at least posted what I did and "held my ground" so to speak with you fellas, lol. I also had to leave the computer and absorb what you had said to me HHM (JustBroke I somehow missed your post) prior to my last post (and cry).

I think the lawyer we consulted with was AWESOME for most; however, she did not like us asking questions AND she was so condescending. At the time we were willing to take her condescending attitude; the biggest appeal to choosing her had been the fact that she was a law clerk for our district before going out on her own in the late 80's; Now we've decided to interview some more; we still may end up using her, but just the same, I'd like the pick-of-the-litter.

Anyway, both of your follow-up posts (the last posts you both made prior to this one) were just what I needed to put my big girl pants back on and get back in the game WITH a lawyer this time. I can't tell you enough how appreciative I am that you both took the time to make these follow-up posts. THANK YOU! I'm so proud to be a part of a forum with generous people. And both of you are GENEROUS!

warmest regards,
Lala



Anyway,

[justbroke]

Lala... continue to ask questions not only of us, but certainly your attorney! You should know the process and if you're trying to be nice to your brother-in-law and the business, certainly be reassured how it will work out in your specific District/Circuit with your specific Trustees.

You're very welcome.