Small business and Rental property issues

[Houseofcards]

Hello all - new here - first post.

Have been browsing this site for a month or so - we are putting things together to file our BK. This site has been very helpfull and thanks in advance for any input anyone has

Some basics:

Married - no kids at home - live in Southern Nevada

Primary residence 211k first - 81k second - CMA about 245k. We want to keep it but HAVE considered letting it go because of the 50k negative equity.

Own 2 rental houses - negative cash flow - negative equity - they will be surrendered. We are giving our tenants notice this month (today) so they don't get caught up in this mess. In hind site I wish we had given them notice sooner. They will get their deposits back.

Wife works full-time but has health issues and really is only working about 2 thirds of her scheduled hours. This has been for about 4 years now but lately she has been working less than that.

We own a business (automobile service and repair) as husband/wife partnership - I run it. I have no employees. I do not own the building I operate out of - I lease it. I DO own all the tools and equipment and can verify that said tools and equipment cost just under 40k to purchase new. We built the business as we went along over the last 6 years - purchasing the tools and equipment we have as we went. Very little inventory but maybe $500 worth of filters and belts on the shelf for quick sale.

We have about 75k CC debt.

We have 5 vehicles - all cash. The best 2 can be exempt - one for each of us. The worst 2 we would surely be willing to surrender. The middle one is a "project car" that i have mostly restored - kinda like an "advertising model" for the business as I work on a lot of older cars too and it helps me get business. I would like to keep the project car as a "display model" for the business but don't know if that is possible (Carmax appraisal on it is $7500 '67 camaro but currently needs an engine)

We also own a camping trailer that we have a loan on - and we will be surrendering it as well.

Like everyone else we have finally gotten to a point where we can't keep up with the CC merry-go-round.

We have retained a BK attorney (paid the full retainer) and are in the process of getting our paper work all together. We were told we would be in a chapter 13 during our initial consultation.

Now the questions:

My income is based on profit and loss statements that our accountant does quarterly. My gross total business monthly sales are normally between 10k and 15k. My net taxable income is basically what profit the business makes after cost of goods sold and expenses. I don't pay myself a regular paycheck - I take draws from the profit as my take home pay. As far as the means test goes what numbers do I list as my income ? The gross sales of the business or the profit from the business ?

The rentals are an interesting thing to deal with. We receive rent from the tenants and pay the house payments and expenses (obviously). Our attorney advised us to stop making the payments on the houses we are going to surrender - and said to put any rent received in a trust account. This has put us in an interesting income scenario because we now show a profit from rentals (for the last 6 months) because we haven't made the house payments for 3 months. Lately we have actually had to use that money for living expenses. Gross rent income $2700/month total but average monthly income over last 6 months (after payments and expenses) is $1500.

Again - for the means test - what numbers do we use for income on rental property? Also we are wondering - if that income puts us over the median (without it we are actually UNDER it by my figures) we would be in a 13 plan. As soon as the plan kicks off - we lose that income (we are surrendering the houses) so now we will have a hardship the first month - does that sound right?

I have asked my attorney these questions via email but have not gotten a response yet so I am looking for input.

Thanks in advance

[HHM]

My income is based on profit and loss statements that our accountant does quarterly. My gross total business monthly sales are normally between 10k and 15k. My net taxable income is basically what profit the business makes after cost of goods sold and expenses. I don't pay myself a regular paycheck - I take draws from the profit as my take home pay. As far as the means test goes what numbers do I list as my income ? The gross sales of the business or the profit from the business ?

It actually doesn't matter because the results would be the same. But you would list the Profit after expenses. Side note, are you making Estimated Tax Payments?

The rentals are an interesting thing to deal with. We receive rent from the tenants and pay the house payments and expenses (obviously). Our attorney advised us to stop making the payments on the houses we are going to surrender - and said to put any rent received in a trust account. This has put us in an interesting income scenario because we now show a profit from rentals (for the last 6 months) because we haven't made the house payments for 3 months. Lately we have actually had to use that money for living expenses. Gross rent income $2700/month total but average monthly income over last 6 months (after payments and expenses) is $1500.

Again - for the means test - what numbers do we use for income on rental property? Also we are wondering - if that income puts us over the median (without it we are actually UNDER it by my figures) we would be in a 13 plan. As soon as the plan kicks off - we lose that income (we are surrendering the houses) so now we will have a hardship the first month - does that sound right?

You are still liable for the expense even though you are not paying it so the rental income does not effect anything. The rental income would not count because you back out the expense of the rental units.

This attorney may just being conservative in setting your expectations until he can look closely at your numbers. But, there is more to getting a chapter 7 than being over/under the median. Since you are self employed, getting 7's are harder.

[StartingOver08]

Please be careful when valuing your tools of trade. Do not use "replacement cost new" as that shows more value than can be achieved by a quick sale.

I realize you are keeping the tools - but a "fire sale value" is what you want to use.

Some tenants move right away when you notify them you are planning to file BK. Just be aware.

The idea of a Ch 13 is to give to the creditors the same value they would receive in a total liquidation of your assets in a Ch 7. So, if you value your tools/assets too high, your payments will be high.

[jb300]

Since you are self employed, getting 7's are harder.

Why is that? I am self employed and all 3 of the attorneys said no problem with going 7. I am sure you have a reason for making that statement and I would just be curious why that is that 7's can be harder to get being self employed?

In my state we are only allowed $10,000. for work tools.

[HHM]

Since you are self employed, getting 7's are harder.

Why is that? I am self employed and all 3 of the attorneys said no problem with going 7. I am sure you have a reason for making that statement and I would just be curious why that is that 7's can be harder to get being self employed?

In my state we are only allowed $10,000. for work tools.

Not so much "harder" in a legal sense, but in a practical sense. Also, it somewhat depends on what you do, but self employed filings are usually given a higher degree of scrutiny than other cases. Now, if you are a non-consumer Chap 7 (i.e. primarily business debt), then chap 7 is no problem, but if you are self employed and a consumer chap 7, AND you are still making pretty decent money at your business, then getting a 7 is much more work.

[Houseofcards]

The "tools of the trade" allowance that we can exempt is 20k (10k for each of us). I consulted with a business appraisor and he told me the value of the tools and equipment would be about 25 cents on the dollar. I didn't pull the trigger on having the appraisal done, but i can if i pay him $1500 to do it. The actual appraisal will include the "intangable" assets as well (good will, etc.)

thanks for the input

[Houseofcards]

As far as estimated tax payments the answer is yes. The last quarter of last year was the first time our accountant advised us to start the payments. 2008 was the first year that the business made a profit (we opened in 2003). When we did our 2008 taxes though - we applied the entire refund to our estimated tax for 2009 so I will not need to make the estimated tax payments for the rest of the year.

[diebroccoli]

didnt see an answer to your means test question, so:

If your debt is greater than 50% biz debt, the means test is almost meaningless (unless your making a LOT of money from the biz). I am not a lawyer or an expert, but am in a very similar position.

[Houseofcards]

We are a sole prop - partnership - not incorporated. None of our debt is "business" debt as i understand it because we are responsible for all of the debt regardless.

I did, however, have a "Business" CC that was used to buy parts and supplies and that is one of the CC's we are adding to the matrix (balance about 3800). The card is in the business name and in my name jointly.

The remainder of our CC debt has accumulated due to needing the money for living expenses over the last 4 or 5 years.

Interesting thing is that this whole thing has been a real eye opener. I use Quicken to keep track of finances and i printed a report of our spending for last year - by payee. It is shocking to see how much we really spent. I always thought i was good at budgeting over the years till i got a hard look at this printout. We will definately be changing our lifestyle over the next few months - we will have to do it to survive.

If no one else responds on this I will keep you apprised as to how my attorney treats it - and ultimately how everything goes as this process goes on