Personal Ch7 with LLC, need help

[Feelbad]

My wife and I are preparing to file personal Ch.7. The attorney has all of the paper work and expects to file in the next 3 weeks. My income comes from an in home services business with no employees (other than me) that is an LLC. The income can come in large amounts but is very irregular, and I have been able to meet the means test at any point in the last year.

As of today there is less that $100 in the LLC bank account and less than $2k in assets. A client has signed a service agreement (I have not) and mailed a check that after some initial direct expenses will leave about $8k in the LLC bank account. In normal times this would provide $ for smaller ongoing expenses associated with fulfilling my end of the agreement as well as income for me over the next 90 days to pay our regular bills (non cc). The LLC is unlikely to receive any more income in the next 90 days and has not received income for almost 90 days prior to today. There is no other outstanding A/R and no inventory.

I am concerned that if the court took the cash in the LLC we would not be able to pay our bills after we filed. My attorney told me that the assets of the LLC will not be considered as personal assets but the trustee will want to see the P&L to confirm my income. I provided the P&L for the life of the business (18 months) as well as bank statements, but I can't afford for my attorney to be wrong on this one.

Questions:
1. Will the trustee take the $8k? Even if there are future business expenses to be paid from the $8k to provide the services required by the agreement?
2. Will the trustee take the $2k in assets? Or are they tools of the trade? If the LLC is the asset can the "tools of the trade" within the LLC be claimed as my asset to exempt?
3. Will I be able to keep the LLC open and running? I can from an operational and cash flow standpoint, but not if the trustee takes the cash or notifies a client.
4. If we file next Tuesday, I sign the service agreement on Wednesday and receive the check from the client in the mail on Thursday and deposit it would this simply be treated as a transaction after the file date and not available to the trustee?

This income is not "extra money" and we still meet the means test even if it is figured in as income to me. But if the trustee takes it we may not make house payment and utility bills until the next customer comes along.

The business is not worth anything to anybody but me. No one would agree to purchase the existing agreements.

I would appreciate any advice

[Dst1]

If you are the sole owner of the LLC then the net positive value of the business is an asset to your BK. It's entirely possible that the Trustee could force you to sell the business or take those assets. You cannot hide personal assets in your business. That's a no no.

In other words, it's true the assets belong to the business but the business belongs to you. So as far as the BK is concerned they are your assets.

Is you attorney experienced in dealing with personal and small business BKs? It doesn't sound like it.

[Feelbad]

The business is worthless without me, and taking it would end my ability to earn an income.

Today there is no cash and no A/R, leaving the $2k in assets. So at this point there are no assets to hide. This is not the issue. I also find it hard to believe the trustee would view think it worthwhile to end my earning ability for this amount. Wost case I may be forced to pay to keep the assets. My questions really pertain to the potential agreement and income associated with it.

Legally the agreement is not executed as I haven't signed it and to date have not received the check. My attorney tells me she can speed up my filing if I decide I want it done before the check arrives but has told me she believes the trustee will not have an issue with the payment. The agreement would require some ongoing expenses for me to fulfill my services required by the contract. If the trustee took the cash it would simply create another $15k liability (to the client) that is larger than the $8k cash asset they seized.

Not to offend any attorneys but I've worked with about 20 in the past 10 years on one thing or another. One of them knew their business. I have researched this subject extensively, but have found the best advice comes from business owners that have done it or seen it done well.

There is a similar thread under chapter 7 that has helped quite a bit.

I think I understand the risk I run with question 1 and 2. Any thoughts on 3 or 4?

[DeadManCrawling]

Feelbad,

I received your message, and appreciate that you kept it within the parameters of posting rules.

I have read your threads previously with interest. I have not, however, responded, because there are too many variables.

Strictly speaking, the 8k, if it is in the bank on fiing day, IS owned byt he BK trustee, unless you can exempt it in some fashion.

However, this varies by district and even judge and trustee.

Whether a contract is fully executed is of no importance. Whether there are impending expenses to account for the 8k is of no importance.

All that counts is that 8k and whether you have exemptions to cover it. And trust me, 8k will get the interest of the trustee.

In your situation, here is what I would do, AFTER running it by your attorney.

I would take the 8k in cash and use it to pay all of the obligations it is intended for. I would use money orders or cashiers checks to create a paper trail. I would make sure this money is in the bank for a day at most (hours if possible). Then it would all be in the form of cashier checks and money orders. Then I would get those to the vendors or suppliers asap. Then I would postpone filing BK until you were sure they had all cleared.

If the business has no real value except furniture and a few computers, there shouldn't be an issue there. Make sure yu can exempt the important stuff, and remember electronics and software are worth almost nothing.

On filing day, you want to have that 8k not only gone, but the money in other people/company accounts.

You are in a dicey situation, and I hesitated to even answer, because of the above.

This is NOT insurmountable, but it can be a challenge. Your LLC or Corp IS an asset you own. Thus, on filing, the trustee owns it. I listed my corporate shares as being worth ZERO on the schedules. The reason was this: I asked my customers to prepay their accounts, so that NO money was owed. Thus on filing day, there were no A/R. I told customers I was doing tax and retirement planning. No one blinked an eye. Everyone did as I asked and all bills were paid in advance. And spent on regular business and living expenses.

So far, it seems to have passed muster. We are looking like just another typical BK case.

Your situation, like mine, is more complex than the norm, and nothing I say should be acted on without consulting your attorney.

This also depends on your state.

I apologize for delaying answering, but I really did not want to offer advice that worked, or seemed to, for my case, but might be deadly for yours.

So far, the trustee seems to have abandoned all interest in my corp, its assets, future earnings, and so on.

If this holds true, we will have survived.

God willing, you will too.

best,

-dmc

[Feelbad]

Strictly speaking, the 8k, if it is in the bank on fiing day, IS owned byt he BK trustee, unless you can exempt it in some fashion.

However, this varies by district and even judge and trustee.

Whether a contract is fully executed is of no importance. Whether there are impending expenses to account for the 8k is of no importance.

All that counts is that 8k and whether you have exemptions to cover it. And trust me, 8k will get the interest of the trustee.

First, thank you for getting involved. Even if it is not exactly the right way for me to handle this (and it may be) different opinions give me options to discuss with my attorney.

Why would it not matter that I had not executed the agreement if I have yet to receive the check from the client? If this were to happen after filing why would it not be like someone filing two days before their paycheck?

[DeadManCrawling]

You could handle it in your original fashion, but here is the main issue:

You will be asked if you expect any future changes or payments of any substance.

If you answer no, you are committing perjury. Whether it ever comes to light is doubtful. But, should there be cause for delays,, such as an issue at the creditors meeting, you may receive greater scrutiny ffrom the trustee, in many areas, possibly including this.

For instance, let's assume your 341 was continued for some reason, or things were delayed. The trustee may ask if there have been changes or new income between filing day and 341. They may also ask for bank statements. If this 8k shows as a deposit, they will be interested in where it came from. Then, they MAY ask for a copy of the contract. The contract, with a date prior to filing day, will be a major issue.

Of course, as I said, this is unlikely. I am not sure I would roll the dice on it, though. You may choose differently, only you can determine the best course.

What I presented here is probably worst-case scenario, and would result in loss of the 8k, dismissal for bad faith, and other sanctions. Unlikely as it may be, you need to be informed about this before proceeding.

Good luck.

[Dst1]

You could handle it in your original fashion, but here is the main issue:

You will be asked if you expect any future changes or payments of any substance.

If you answer no, you are committing perjury.

And that fundamentally is the problem. You can slice it and you can dice it however you want but you know. Now, whether someone can prove perjury is a different matter entirely, as DMC said.

But ask yourself honestly if the risk is worth the reward. For 8k? Sanctions? A possible jail term? Even if the odds are only .001% that is still too much risk. I know I get hammered here on the forums for being risk adverse like that but so be it.

And if you get away with it what then? What about the wear and tear of guilty thoughts. Maybe you don't have them. But maybe you will.

I'm never ceased to be amazed how people can be penny wise and pound foolish and convince themselves that it will never happen to them. I'm guilty of that. I never thought I would be considering BK. But here I am.

Think long and hard before you run this risk.

[frogger]

I'm never ceased to be amazed how people can be penny wise and pound foolish and convince themselves that it will never happen to them. I'm guilty of that. I never thought I would be considering BK. But here I am.

Think long and hard before you run this risk.

When I first started considering filing, some of my first thoughts were how could I hide this, hide that, not disclose this, or get away with that.

The more I have studied and learned, the more I realize that although you may very well get away with something, you still have to live with yourself, and that's one person that I don't want to face in the mirror every day calling me a liar.

I'm know that I'm going to take a beating from the trustee. I know that I've got assets that I'm going to lose.

But.... you know what?

I take that beating one time and it's over. I can start fresh and not have to worry about looking over my shoulder or wondering what might bite me on the a$$ later.

I'll take my licks and move on. After all, it is a fresh start!

[Feelbad]

Again I appreciate the responses and I hope you will respond again.

I'm actually not lying about where it stands now. These are the facts -
- I have not signed the contract.
- I have not received the check.
- The contract is dated when I sign it.
- I'm not sure when I will be asked but either upon filing or at my 341 in early February but I will tell them I had signed an agreement for new business and received a check. I do expect business to continue coming in as well. However this customer/payment was not and and nor do I expect others within the foreseeable future to be out of line with past performance for the LLC.

This will be the first income the LLC has received in 90 days and by the 341 will be the only income in 135 days.

Given this conversation I would arrive at the 341 with the agreement and bank statements in hand.

If I were to sign the contract today I would not be able to perform the services required by the contract if the trustee took the $8k. I would have no problem telling the trustee that I could have signed it prior to the filing but knew it would have been fraudulent to agree to perform services under an agreement when I knew I could not until after I filed.

I would not lie about any of it to the trustee. How does this present a problem for me?

[onwards]

My wife and I are preparing to file personal Ch.7. The attorney has all of the paper work and expects to file in the next 3 weeks. My income comes from an in home services business with no employees (other than me) that is an LLC. The income can come in large amounts but is very irregular, and I have been able to meet the means test at any point in the last year.

As of today there is less that $100 in the LLC bank account and less than $2k in assets. A client has signed a service agreement (I have not) and mailed a check that after some initial direct expenses will leave about $8k in the LLC bank account. In normal times this would provide $ for smaller ongoing expenses associated with fulfilling my end of the agreement as well as income for me over the next 90 days to pay our regular bills (non cc). The LLC is unlikely to receive any more income in the next 90 days and has not received income for almost 90 days prior to today. There is no other outstanding A/R and no inventory.

I am concerned that if the court took the cash in the LLC we would not be able to pay our bills after we filed. My attorney told me that the assets of the LLC will not be considered as personal assets but the trustee will want to see the P&L to confirm my income. I provided the P&L for the life of the business (18 months) as well as bank statements, but I can't afford for my attorney to be wrong on this one.

Questions:
1. Will the trustee take the $8k? Even if there are future business expenses to be paid from the $8k to provide the services required by the agreement?
2. Will the trustee take the $2k in assets? Or are they tools of the trade? If the LLC is the asset can the "tools of the trade" within the LLC be claimed as my asset to exempt?
3. Will I be able to keep the LLC open and running? I can from an operational and cash flow standpoint, but not if the trustee takes the cash or notifies a client.
4. If we file next Tuesday, I sign the service agreement on Wednesday and receive the check from the client in the mail on Thursday and deposit it would this simply be treated as a transaction after the file date and not available to the trustee?

This income is not "extra money" and we still meet the means test even if it is figured in as income to me. But if the trustee takes it we may not make house payment and utility bills until the next customer comes along.

The business is not worth anything to anybody but me. No one would agree to purchase the existing agreements.

I would appreciate any advice

I had a similar situation with my filing (look the other thread we've been discussing for more). From that experience I have a general guideline, which is actually quite logical:

You can't claim as an asset something you do not own or have a claim to.

It's really simple in application. Here are examples. I discussed ALL of these (and some others) with my lawyer during my process, because I'm a bit anal about understanding the details of things as significant as this process, and at some point he (jokingly) wanted to inquire whether I was looking for enter the field of bankruptcy advisement:

1) you signed a contract before the filing, and worked before the filing, but had not been paid yet. You have a claim on the money. It is included in the filing (although your creditors do not necessarily get it, that's a different story).
2) you signed a contract before the filing, but have not performed the work yet. You do not have a claim for the money, and it is not included as an asset, although if it is significantly more than what you would otherwise normally earn it should be reported so there is no suspicion of fraud. It might also void the means test if it's large enough.
3) you are negotiating a contract but have not signed it before the filing. As long as you don't know for sure (this is the exact meaning of the question about "do you expect things to change materially?" on your filing forms) that it will get signed, it doesn't even have to be mentioned in your filing (although you might mention it in the 341 if the change is significant enough, but again we're talking something that would be very unusual).
4) you have a referral agreement with a vendor, have made an introduction to a client, and THEY are negotiating a sale, but have not signed it before the filing. They do a week after, and you get a check (for whatever, say $10K) a month later. It is not part of the BK estate.

Do you see the trend here? the idea is simple; if the money is to be included in the BK estate, you have to have a claim to it - either by having it or by being owed it for some reason or other - BEFORE the filing. Alternatively, if you KNOW - NOT merely suspect, not hope, not even be almost sure but still with a reasonable doubt - for certain that you will gain such a claim in the near future then it might be in the BK estate (but might not). Otherwise it isn't.

Again, PLEASE remember that I AM NOT A LAWYER, I am just speaking based on my very recent case, filed in Aug 2009 and discharged in Dec 2009, with my LLC and all which survived the bankruptcy intact and with no change.

[Feelbad]

1) you signed a contract before the filing, and worked before the filing, but had not been paid yet. You have a claim on the money. It is included in the filing (although your creditors do not necessarily get it, that's a different story).
2) you signed a contract before the filing, but have not performed the work yet. You do not have a claim for the money, and it is not included as an asset, although if it is significantly more than what you would otherwise normally earn it should be reported so there is no suspicion of fraud. It might also void the means test if it's large enough.
3) you are negotiating a contract but have not signed it before the filing. As long as you don't know for sure (this is the exact meaning of the question about "do you expect things to change materially?" on your filing forms) that it will get signed, it doesn't even have to be mentioned in your filing (although you might mention it in the 341 if the change is significant enough, but again we're talking something that would be very unusual).
4) you have a referral agreement with a vendor, have made an introduction to a client, and THEY are negotiating a sale, but have not signed it before the filing. They do a week after, and you get a check (for whatever, say $10K) a month later. It is not part of the BK estate.

Do you see the trend here? the idea is simple; if the money is to be included in the BK estate, you have to have a claim to it - either by having it or by being owed it for some reason or other - BEFORE the filing. Alternatively, if you KNOW - NOT merely suspect, not hope, not even be almost sure but still with a reasonable doubt - for certain that you will gain such a claim in the near future then it might be in the BK estate (but might not). Otherwise it isn't.

Thanks for your help.

In this case I will not have signed or received payment prior to filing. Even if I did, I wold not have performed the services, so would not have claim to the money. The amount may be significant (subjective word, so I will bring it up in the 341 to be on the safe side) but is not enough to affect my means test if it were included prior to filing.

I have no intention of hiding the transaction or lying whether under oath or otherwise. I want it to be legally correct.

I can understand your emphasis on the details. I do think my current attorney is pretty sharp but past experiences have made me a believer in Ronald Regan's quote "trust but verify".

[Dst1]

Thanks for your help.

I have no intention of hiding the transaction or lying whether under oath or otherwise. I want it to be legally correct.

Feelbad. The legally correct thing to do is to tell the trustee about the 8k.

The problem is that you are confusing evidence of intention with intention. They are not the same thing. In order to prove fraud they have to have evidence. But the lack of evidence of fraud does not mean there is no fraud. Fraud goes to what you know in your head, not what's on paper. And the fact is you have stated on these forums that you know you have this future source of income and you know that NOW. Can the trustee or anyone else prove that knowledge. Not likely. But you will know in your head that you committed fraud, and that mental prison can be as bad or worse than anything that the law does to you.

[Feelbad]

Feelbad. The legally correct thing to do is to tell the trustee about the 8k.

The problem is that you are confusing evidence of intention with intention. They are not the same thing. In order to prove fraud they have to have evidence. But the lack of evidence of fraud does not mean there is no fraud. Fraud goes to what you know in your head, not what's on paper. And the fact is you have stated on these forums that you know you have this future source of income and you know that NOW. Can the trustee or anyone else prove that knowledge. Not likely. But you will know in your head that you committed fraud, and that mental prison can be as bad or worse than anything that the law does to you.

I said I would. You quoted my post where I said I would tell the trustee.

I've tried to explain why I don't see it as a lie or tell the truth, moral high ground or fraud situation but I completely understand that it doesn't seem to meet your test of righteousness. I got it.
Thanks.

[onwards]

Feelbad. The legally correct thing to do is to tell the trustee about the 8k.

The problem is that you are confusing evidence of intention with intention. They are not the same thing. In order to prove fraud they have to have evidence. But the lack of evidence of fraud does not mean there is no fraud. Fraud goes to what you know in your head, not what's on paper. And the fact is you have stated on these forums that you know you have this future source of income and you know that NOW. Can the trustee or anyone else prove that knowledge. Not likely. But you will know in your head that you committed fraud, and that mental prison can be as bad or worse than anything that the law does to you.

Legally, he may or may not have to tell the trustee about this specifically. I can guarantee that you have absolutely no idea whether he does or not, nor do I or anyone else in this forum. His lawyer may have an idea, and even he or she might have a different one than another lawyer. The only person, in fact, who could determine this should it ever come to that is not even the trustee, but an actual judge during a court session. And even then, an appellate judge may disagree with them too.

To be blunt about it, your first statement is complete and utter hogwash, on every possible basis.

What I find fascinating is that in your second paragraph, you attempt to justify your false claim by twisting it into an argument on moral grounds, and pulling on the shame lever that so many of us know all too well. That was what got me to write this reply, because I find it reprehensible. It's hard enough for most folks to go through a bankruptcy as it is, without needing more emotional stress piled on top by folks with a somewhat inane personal moral agenda that they try to impose on everyone and sundry.

Thus I would like to make a counter-statement so that feelbad may not feel so bad. Feelbad, listen. There is absolutely no shame in filing for bankruptcy, and you are doing absolutely nothing wrong. A bankruptcy is simply a procedural method to allow a person to restructure their finances, exactly the same as it is for a corporate entity (which the law in many ways defines, oddly enough, also as a person). There is nothing specifically wrong or right about doing it, it's simply a process with certain reasonably well-defined steps and outcomes.

You don't need to twist yourself in a knot over it, and you owe nobody anything except the exact and absolute minimum stated by law, as interpreted in your circumstance, advised and circumscribed by your lawyer. If they tell you that this information is worth highlighting in your filing or 341, go ahead and do so. From my experience, I doubt it (it sounds like more or less a normal contract for you, nothing unusual). If they tell you you don't need to, don't. It's that simple. As for fraud, that has a very specific, legal definition, and your lawyer is best suited to address to steer you away from such.

But let's make it clear: you are not only allowed but in fact encouraged to earn money during and after a bankruptcy proceeding. The code is not there to hang you out to dry in town square. It's there to give you a chance to restructure your failed finances, while allowing creditors the ability to distribute what limited non-exempt assets you might still have in a legally acceptable way without having to dicker over your bankruptcy estate. And it's also there in a practical sense to protect the legal system by formally adopting a legal standard for this sort of proceeding, so that 1.5M filings a year on average do not gum up the works for more important things (almost everything else). Because most people due to misplaced shame and a sense that there is something morally wrong about a bankruptcy tend to go through all their assets in an attempt to avoid bankruptcy (a misguided approach by the way, but that's for a different post), the vast majority of chapter 7 filings are no asset cases. These are quick and simple to resolve.

You will pay the price for the bankruptcy in years to come as you work to establish yourself as credit-worthy again. Happily for both sides, in 2005 the law was changed to protect lenders on one particular level, which is extending the minimum time frame between filings; thus a lender will be much less hesitant to lend to you post-filing, knowing that for at least several years, you can't do it again. That will help. Otherwise, don't worry about your commercial lenders beyond that, nobody is going to be offended by your filing. Look at it coldly and unemotionally, and if it is the right option for you, go ahead and do it and don't worry about it. Hire a good lawyer, disclose to them everything, and follow their advice. That's really all there is to it.

Good luck.

[Feelbad]

Thank you onwards.