Opening a new company

[Lovesgirl]

We have a S corp named ABC Inc.(fake name) and we have a dba of Little Cow DPI (also fake name) with liabilities of about $80,000 and assets are basically a couple old computers, old desks, a couple printers that cost $100 when they were new and maybe $5000 owed to us in accounts receivable.

Our bankruptcy attory advises me and husband to go bankrupt chapter 7 and she will include the company debts (even though they are not dischargable). We will reaffirm the 1st, 2nd mortgage and a car (we are on time with all of it and not behind.).

She said before filing to open new personal bank accounts with a bank we've not had any dealings with (looks like Wachovia). To open a new company (either a corp or LLC which we know after talking to our CPA), open a biz acct at that same new bank, open a new merchant acct (which we have to have in order to charge our customers credit cards) and we can go ahead and do business as the new company. Then after our personal bk, we will close and dissolve ABC company, close the dba name and send letters to creditors that the company is dissolved, huge liablities and no assets and contact bk attorney with questions and that officers have file bk as well so no one can come after us.

Question: if we mainly use Little Cow DPI currently (as a dba of ABC), can we incorporate or LLC as "Little Cow Marketing" or something similar as long as it is avaialble with the secretary of state? or is the fact that hte name is similar a risk?

Question: The few assets we have, old desks and computers are needed in order to run the new company. How do we transfer these minor valued assets over to the new company without risk? If the currently company owes me (an officer money) can I write myself a check and buy the assets and then sell them to the new company?

Question: Before filing bk, we want to refiance our car and our 1st mortgage (both of which on time and not behind), just to get the payments lower so we can reduce our overhead and not be in trouble again in a few months. Obama has a HARP program www.makehomeaffordable.gov and the calculator says if the 1st mortage is more than 31% of gross income of whoever signed the mortgage (husband only) then we can refi with HARP and our mortgage of $1326 would do down to about $600 a month.

We are an s corp and husband get a paycheck every 2 weeks, makes about $22,000 a year. But then we can write checks out of the company to ourselves or write checks to pay a bill that is personal and when our CPA does taxes he includes that money as "dividends to officer". So on our tax returns it shows a much higher "income" (but we usually don't owe much taxes). Here is the question: the company we want to refi the the house like this HARP plan wants proof of his income so we can show check stubs, but it says if you are "self employed" they they want tax returns. Since we are employees and officers of a corporation, are we self employed in this instance? and have to show the tax return or are we employees of the company and only have to show pay stubs for the year?

[last2cents]

Lovesgirl - I am in a very similar situation to you, and will try to explain here how I am (and have been advised) to handle it.

We have a S corp named ABC Inc.(fake name) and we have a dba of Little Cow DPI (also fake name) with liabilities of about $80,000 and assets are basically a couple old computers, old desks, a couple printers that cost $100 when they were new and maybe $5000 owed to us in accounts receivable.

My company is a C corp - roughly in the same position as yours. The numbers are slightly higher. I don't have a DBA - just the name we've been going by for 31 years. I'm not the first owner of the company (bought it in 2002 from a family member).

Our bankruptcy attory advises me and husband to go bankrupt chapter 7 and she will include the company debts (even though they are not dischargable). We will reaffirm the 1st, 2nd mortgage and a car (we are on time with all of it and not behind.).

The company debts, if you are personally guaranteed on them, MUST be included in your filing. If you are NOT personally guaranteed - they should NOT be included. At least that is the way I understand it working for a C Corp. Your personal liability for the debts will be discharged. The corporation's will not.

She said before filing to open new personal bank accounts with a bank we've not had any dealings with (looks like Wachovia).

I agree completely. Open new personal and business accounts. I'm in the process of doing this now, because one of the debts that I've PG'd is a credit line with our current depository bank. I don't want them getting the bk notice and locking down the business accounts.

To open a new company (either a corp or LLC which we know after talking to our CPA), open a biz acct at that same new bank, open a new merchant acct (which we have to have in order to charge our customers credit cards) and we can go ahead and do business as the new company. Then after our personal bk, we will close and dissolve ABC company, close the dba name and send letters to creditors that the company is dissolved, huge liablities and no assets and contact bk attorney with questions and that officers have file bk as well so no one can come after us.

Question: if we mainly use Little Cow DPI currently (as a dba of ABC), can we incorporate or LLC as "Little Cow Marketing" or something similar as long as it is avaialble with the secretary of state? or is the fact that hte name is similar a risk?

Here's where you're going to run into several trouble points.

1. The TT is going to look at your stock in the old corporation and the new one as an asset. He or she may require you to dissolve either or both businesses. My attorney has reccomended that we include in my petition a request that the court "abandon" the asset of my company - mainly because its insolvent itself. The corporation owes a huge, honking amount of cash (and there are liens involved) to the Infernal Revenue Service, along with the state taxing authorities - and even if the trustee forced a liquidation, there wouldn't be anything left over to contribute to the BK estate.

2. Merchant accounts. If you are in BK, or post discharge, or your credit score is in the toilet, there is not a snowball's chance in hell that you will be able to obtain a traditional merchant account with a reputable firm. You'll be forced into dealing with Pay Pal - who WILL turn a blind eye to those factors if you use their "low end" product. This is my fall back position in the event that the TT wants to wade in the swamp that is my company.

3. Your name is probably your most valuable asset. I mentioned earlier that my corp has been in business for 31 years. I am trying very hard to avoid starting a new company (if I have to, I will, but I'd rather not). My attorney understood my reasons for this, and has told me point blank, that while the BK will relieve my personal obligations for the debt, the Corporation will still be responsible, and will likely be sued. Now the tax debt sort of precludes suits - but what I'm doing in that regard is negotiating settlements with the corporation's creditors that will allow the company to move forward on its own.

Question: The few assets we have, old desks and computers are needed in order to run the new company. How do we transfer these minor valued assets over to the new company without risk? If the currently company owes me (an officer money) can I write myself a check and buy the assets and then sell them to the new company?

If you transfer assets to the new company, the new company must purchase them from the old company at Fair Market Value. If you write yourself a check, that will be income that will need to be included on your means test.

Question: Before filing bk, we want to refiance our car and our 1st mortgage (both of which on time and not behind), just to get the payments lower so we can reduce our overhead and not be in trouble again in a few months. Obama has a HARP program www.makehomeaffordable.gov and the calculator says if the 1st mortage is more than 31% of gross income of whoever signed the mortgage (husband only) then we can refi with HARP and our mortgage of $1326 would do down to about $600 a month.

Talk to your existing lender about modifications - likely they won't help you if you aren't behind - but a true refi is probably going to be out of reach.

We are an s corp and husband get a paycheck every 2 weeks, makes about $22,000 a year. But then we can write checks out of the company to ourselves or write checks to pay a bill that is personal and when our CPA does taxes he includes that money as "dividends to officer". So on our tax returns it shows a much higher "income" (but we usually don't owe much taxes). Here is the question: the company we want to refi the the house like this HARP plan wants proof of his income so we can show check stubs, but it says if you are "self employed" they they want tax returns. Since we are employees and officers of a corporation, are we self employed in this instance? and have to show the tax return or are we employees of the company and only have to show pay stubs for the year?

I've done the exact same thing with my corporation. When I applied for my mods (I've gotten them done on both my first and 2nd), I merely sent in paystubs. Technically, if you draw a company paycheck, pay all appropriate witholding taxes, unemployment taxes, Medicare & FICA, then you are an employee of the corporation. The fact that you own stock in a particular corporation (whether you're an employee or not), and receive dividends, does not make you self employed. Send them the paystubs. If this were an LLC or a sole proprietorship - that would be a different kettle of fish.

The fact that you've been taking "dividends" from the company and haven't owed much in taxes is strictly due to tax law. There were many tax "havens" for dividends that made this a very attractive method of taking income outside of the realm of payroll. This has, quite frankly, bitten me in the proverbial ass, or the literal ass as it may be. Be very careful (if you haven't filed yet) about discounting those dividends as income. I stopped doing this in January (because of the tax issue) but found out later, that if I had continued doing so - all of those checks would be counted as income on the means test.

Now, having said all that - please do not take my opinions as gospel - I'm just as much of a newbie to all of this as any new poster here. I hope I helped a little.

[Lovesgirl]

Thanks and a couple questions . .

1. the obama HARP plan wants you to be on time and not behind, so if we can only use paystubs, we should be able to get that loan mod you thinK?

2. I have no way of knowing for sure what company creditors have a personal guarantee from my husband and who does not. Some creditors we have worked with for 20 years. I don't want to call and ask them cause we are behind on some and don't want to alert them we might go bk. Will the bk court simply include them all and if they aren't personal guarantee items, the creditors will notify the court and then try to go after the company?

3. The company has no assets and at the end I'm sure will have money in the bank, so atty is saying to dissolve it. the old company will basically have lots of liabilities and no assets so the attory recommend we dissolve and close instead of a bk of any kind for it. But I am afraid of setting up a new company with a similar name. Afraid that a creditor will say we are basically the same company and try to sue to put a lien on the new company? is that a problem? We are known for our name as well and it would hurt our new chances to start out with a whole new name.

4. You said we may have to stick with Paypal's "low end" product. What is that? We currently have a merchant acct with them where we enter a customer's credit card info into a "virtual terminal" of sorts. Do you think if we set up the new company and then set up a new merchant acct with paypal, that they will leave it open so we can use it post personal bk?

5. My husband own 100% of 100 shares of stock valued at $100. so no value there. Anything to worry about with this?

6. We are not having the sales and the cash flow to negotiate with creditors to keep the company going. If we could get even a $10,000 - $15,000 loan we could but so far banks are saying we have too much credit card debt.

7. So to transfer these minor assets, we could "liquidate" assets like printers, fax machines, etc. selling stuff on ebay, craigslist, etc. (keep records) and put the funds into the currently _(pre dissolved) company. then the new company simply writes a check to the old company to buy the assets? Is that a safe way to do it?

You have been very helpful. It is mentally encouraging to hear from someone that has been or is going thru it.

[goingcrzy]

Here is an issue my attorney brought up - he said there is a risk that the biz creditors can sue the new company since it is basically the same company. In my case, he doubts it would happen - BUT i don't have that much biz debt.

I don't know if anyone here has had that happen or if it just bankruptcy "lore".

[last2cents]

1. the obama HARP plan wants you to be on time and not behind, so if we can only use paystubs, we should be able to get that loan mod you thinK?

I don't know much about the HARP plan itself (my mods were not affiliated with it) - but that's definitely what I would try in your situation.

2. I have no way of knowing for sure what company creditors have a personal guarantee from my husband and who does not. Some creditors we have worked with for 20 years. I don't want to call and ask them cause we are behind on some and don't want to alert them we might go bk. Will the bk court simply include them all and if they aren't personal guarantee items, the creditors will notify the court and then try to go after the company?

Are these trade creditors (net 30 terms) for supplies - or are these bank lines of credit / loans / credit cards. Your trade creditors probably do not have PG's on you or your husband. These are not debts that (at least to my knowledge) should be included in your filing. Bank lines / loans and credit cards will most likely have a PG and should be listed. Remember, the BK only discharges your personal liability for the debt - and not that of the corporation (which is why I'm settling some of those on my end on behalf of the corp - basically renogtiating with the company's creditors in order to keep this thing going forward).

3. The company has no assets and at the end I'm sure will have money in the bank, so atty is saying to dissolve it. the old company will basically have lots of liabilities and no assets so the attory recommend we dissolve and close instead of a bk of any kind for it.

I agree with not having the company file BK - too costly and you really don't have anythign to gain from it.

But I am afraid of setting up a new company with a similar name. Afraid that a creditor will say we are basically the same company and try to sue to put a lien on the new company? is that a problem? We are known for our name as well and it would hurt our new chances to start out with a whole new name.

That is a consideration - and also remember that regardless of the fact that its a new company - you very may well have to deal with suppliers that got stiffed by the old company. Think about this very carefully - they in all liklihood will refuse to supply you if your old entity owes money. They may or may not sue the new entity - and whether or not they'll win really depends on whether or not you've got all the i's dotted and t's crossed when it comes to the dissolution of company A and the startup of company B.

4. You said we may have to stick with Paypal's "low end" product. What is that? We currently have a merchant acct with them where we enter a customer's credit card info into a "virtual terminal" of sorts. Do you think if we set up the new company and then set up a new merchant acct with paypal, that they will leave it open so we can use it post personal bk?

Pay Pal has a few different methods of providing merchant services. The low end product is basically a glorified Pay Pal account, that doesn't require any vetting of the merchant or their credit info. If you have a web site, and accept card data, its all done through pay pal's system - you never get your hands on the card data thus reducing some of the risk of fraud. Their second level service sounds like what you have now - the virtual terminal with their regular merchant services. Merchant accounts are not transferrable between companies - so if you open a new firm - you'd need a new merchant account, and you'd have to go through the qualification process again. This will involve pulling your credit. If you do this pre-filing, and there is no suspicious or unusual activity on your merchant account, or a lot of charge backs, then it would probably survive the BK because they wouldn't be notified (they're not creditor you would have to list). However, if you needed a raise in your processing limits down the road, that ususally involves another peek at your credit report - and that may be a problem.

5. My husband own 100% of 100 shares of stock valued at $100. so no value there. Anything to worry about with this?

We're not talking book value - we're talking market value of the company. If the Trustee wanted to sell the company to the highest bidder - are there any of your competitors out there that would like to get their hands on your trade name? Client list? Or your client specs? And what, perhaps, would they pay for it? That number, less the value of your liabilities is the value of your stock that the trustee is going to be looking at.

In my case, even if someone was willing to buy The Swamp (I think I'm going to start calling it that permenantly), there is so much debt involved corporately that the trustee wouldn't gain anything from the sale. This is why we're going to petition that he / she "abandon" the asset, because their not going to realize anything from the sale or liquidation - and I at least then have a chance of starting over without the hassle of starting from scratch.

6. We are not having the sales and the cash flow to negotiate with creditors to keep the company going. If we could get even a $10,000 - $15,000 loan we could but so far banks are saying we have too much credit card debt.

You may want to re-think this. Throwing new loans after old loans is what got me in this position to begin with. Take a long hard look at your sales and expenses for the last six months (business wise), and try to come up with a re-organization plan. Cut expenses, and first try to come up with a way that your cash flow can support operations. Try to increase sales. Ask your creditors to be patient with you while you come up with a plan. You might be surprised as to how many will take very small payments on a monthly basis while you turn things around.

7. So to transfer these minor assets, we could "liquidate" assets like printers, fax machines, etc. selling stuff on ebay, craigslist, etc. (keep records) and put the funds into the currently _(pre dissolved) company. then the new company simply writes a check to the old company to buy the assets? Is that a safe way to do it?

If you want the new company to buy the old company's stuff, then determine a FMV for each item via ebay and such. Then draw up a sales contract between the two companies - new company writes a check to the old company and then the old company MUST use those funds to pay creditors (and shareholder's and officers get paid LAST - even if the company owes them money). This was one of my biggest issues with starting a new firm. I'm broke - where was I going to get the cash to buy the assets from the old company???????

You have been very helpful. It is mentally encouraging to hear from someone that has been or is going thru it.

Thank you It's just one day a time...............

[Floridaheart]

Deficiency Judgment guaranteed by corp

We recently lost our work warehouse to foreclosure and had stupidly given both personal and business guarantees for the mortgage amount. The guarantees were from both my husband and I and also our C corp. The bank filed for a deficiency judgment at the same time as the foreclosure judgment - which were both granted. The sale date is scheduled for August. We've been instructed to complete a 1.977 form for both ourselves personally and the business. We've consulted a lawyer regarding CH7 (we qualify) before we actually go ahead with the bankruptcy can our bank accounts (both personal and business) be frozen as a consequent to the judgment or does the bank have to wait until after the sale to determined the true value of the deficiency?