Business Loan in default - preplanning and CC questions

[justasking]

Hello All,

We are an S Corp with two bank loans in default. Still working with lawyer / bank on a resolution that does not require Chapter 11, which is what we would do if necessary.

We have a number of corporate CC's ... as well as personal cards and corporate cards for a second S Corp biz.

My question is this: while I recognize CC Co's can close accounts at any time, does anyone know if they will automatically close across a name or SS# when one entity files for Chapter 11?

For example, have a corp CC, second corp CC and personal CC from one CC Bank. If we need to move to Chapter 11 for Biz in loan default, do I assume all three cards are gone now or ??

Without resorting to "fraud", I am trying to be strategic about using CC's from now until the day we possibly file ... which could still be 6 to 9 months down the road. Or maybe not

Any thoughts / info appreciated ...

[jimbo367]

If you file an 11 those banks can cancel them, why not.

R U think of a Corp 11 or personal 11?

[Mensa1]

JA: Credit with the same issuer will ALL cancel. Be mindful of any guarantees personally that you have given to these lenders. Most issuers require that guarantee on small corp debt so you may find the Ch 11 to be nothing but a stall tactic in dealing with the debts. Think it through very thoroughly before pulling that handle because once you do it may set off a chain reaction you hadn't planned on. There is no reverse on that vehicle, either.

[justbroke]

For example, have a corp CC, second corp CC and personal CC from one CC Bank. If we need to move to Chapter 11 for Biz in loan default, do I assume all three cards are gone now or ??

WHiel the Co-Debtor stay would protect you (personally) while the bankruptcy is pending (active), there's no telling the implications of those banks pursuing your personally for guaranteed debt.

I would seek counsel, but traditionally, those filing Chapter 11 or Chapter 7 on their business, where it's a closely help corporation (S-Corp, LLC, etc) and they have personal guarantees, they also file personal bankruptcy. This resolves the issues with the personal guarantees. You should also be able to do a non-consumer Chapter 7... if the numbers work out. A non-consumer Chapter 7 is a good thing because the United States Trustee pretty much has no cause to have your case dismissed, unless you committed fraud or outright lied on your petition(s).

[justasking]

You should also be able to do a non-consumer Chapter 7... if the numbers work out. A non-consumer Chapter 7 is a good thing because the United States Trustee pretty much has no cause to have your case dismissed, unless you committed fraud or outright lied on your petition(s).

We are seeking counsel as well. It is just no one really talks about how to strategically plan for your survival online, so I thought I'd ask.

I will ask Attorney as well, but what is a non-consumer Chapter 7?

Right now, we appear to be being told we can do a business Chapter 11 without doing a personal Chapter 13 (7 not really an option as we want to keep our homestead ... both house and business are located on it).

We will be very clear if this is true or not before we do anything. Also still waiting to hear if bank will be willing to negotiate. Right now, they have a better chance of getting more $$ from us if we stay out of Chapter 11, IMHO.

Anything else I should be strategically thinking about?

Thanks for all replies. This is appreciated.

Updated >> Yes, it appears that since most of our debt would be non-consumer debt, we could do a Chapter 7 ... but we don't want to, we want to do a business chapter 11.

Is this not an option because it is an S Corp?

[jimbo367]

The biz 11 will not prevent them from moving on you personally.

What you should try and do is research a "pre-planned 11"

[justasking]

The biz 11 will not prevent them from moving on you personally.

What you should try and do is research a "pre-planned 11"

Yes, thank you. I've been doing that right now

What I see / understand so far is that Chapter 11 is a reorganization opportunity ... so the question is whether we are in a position to close / negotiate with CC Co's in addition to bank and be aware of all consequences (Biz and Personal) if we move business into Chapter 11.

I find it interesting that the big, big companies can do Chapter 11 and emerge but the small biz guy has to worry about it all falling apart if he does it. Anyway ...

Since we are not there yet, it is just research / understanding options / determining best way to move forward.

Thanks for all thoughts / resources, etc. This has been helpful.

[justbroke]

Remember, the problem with the Business Chapter 11, against the "entities" that are the business entities, is that your personal guarantees could be used to collect anything that the Chapter 11 doesn't pay.

For example, you propose a Chapter 11 Plan of Reorganization for your ABC Widgets LLC, that would pay $20K of a $100K unsecured line of credit. However, you personally guaranteed the line. After the Plan is confirmed (if it even does get confirmed because they are one of your larger creditors), they could Motion for Relief from the Co-Debtor Stay and proceed directly against you, personally.

This example is specifically why many "closely held" corporations that go into bankruptcy, whether it is Chapter 7, 9, 11, or 12... force their shareholders that have given personal guarantees, into bankruptcy themselves. It's just the way it works. You basically said that if the business should fail, I'll pay. You may just be called out on that guarantee.

Now, on the other hand, the creditor may be happy to get $20K of $100K and think that's the best they'll get, because if they pursue you, you'll just file Chapter 7 and be done.

As for what non-consumer Chapter 7 is, it just means that your primary debt is not "family or personal" debt. A non-consumer Chapter 7 also means that you escape the fury of the U.S. Trustee. Some say that non-consumer Chapter 7s allow business owners to "abuse" the system, but they are not abusing it. Congress chose that it works that way.

I find it interesting that the big, big companies can do Chapter 11 and emerge but the small biz guy has to worry about it all falling apart if he does it. Anyway ...

The big companies do "pre-packaged" Chapter 11s. They usually "emerge" from Chapter 11 in several months... not years like a small business, consumer or single-asset Chapter 11 case.

In a pre-packaged Chapter 11, the debtor (corporation) has already obtained new financing to restructure the debt! They can do this because they usually have a lot of assets!

[justasking]

Remember, the problem with the Business Chapter 11, against the "entities" that are the business entities, is that your personal guarantees could be used to collect anything that the Chapter 11 doesn't pay.

Yep, we get all that ... and your further info is all what I understand as well.

Our hope is that our bank will realize exactly what you say ... that if they drop XX dollars from the debt and restructure the rest, they are better off then if we go into Chapter 11.

If we had to move into Chapter 11, we recognize it could push us all the way to a 7. I think any small biz owner better understand that, given personal guarantees and all. And since every business loan requires them, you are pretty much left with that as your only option.

Depending on how this year moves forward, a pre-planned 11 or re-org plan without 11 might still be an option for us. We've got a relatively small amount of biz debt that this bank decided they wanted to call so if we could get our bookings / receivables up again, we might be able to do a SBA 90% guaranty loan to buy out this bank.

It really all depends on how this bank wants to play it ... if they have the regulators on their backs and want out, they may just take the loss and get us off the books. If they just need to get good loans on their books, they could also just take the loss, cut a new small loan and now our books look OK again and the regulators are happy. Hard to say which way they will go ...

[jimbo367]

Yes, thank you. I've been doing that right now

What I see / understand so far is that Chapter 11 is a reorganization opportunity ... so the question is whether we are in a position to close / negotiate with CC Co's in addition to bank and be aware of all consequences (Biz and Personal) if we move business into Chapter 11.

I find it interesting that the big, big companies can do Chapter 11 and emerge but the small biz guy has to worry about it all falling apart if he does it. Anyway ...

Since we are not there yet, it is just research / understanding options / determining best way to move forward.

Thanks for all thoughts / resources, etc. This has been helpful.

No that's not what pre-planned is, pre planned is having each and every creditor line up with a settlement agreement be fore you file.

I assume this biz involves more than 5M is assets etc.

Your cost will be 30K -50K maybe more, are these lawyers telling you that?

I did one several years ago it took have my working time to devote to it, then I had to do a personal 11 after that.

Both were about 80K in fees, I could have walked and started new corp easier.

[justasking]

I assume this biz involves more than 5M is assets etc.

Nope, much smaller than that ... assets under $500k.

And we are aware of fees too.

Bank loans are less than $200k ... and it will cost the bank 3X's our cost to pay their lawyer versus ours ... so we are hoping that plays a factor too.

Ah, so what I wanted was a bank buy-out, which may not be possible. That would all depend on new projects closed, projections for 2010, etc.

The interesting part is that these loans were used in part to fund employees for a project that will start production in 2010. So the last 18 months, existing customer orders were below expectations when the loans were made. Projections for 2010 and beyond are very solid. If we could get a feel for what the bank would accept, I may be able to find another bank willing to do a new loan, given an adjusted balance sheet, etc.

[Mensa1]

Nope, much smaller than that ... assets under $500k.

And we are aware of fees too.

Bank loans are less than $200k ... and it will cost the bank 3X's our cost to pay their lawyer versus ours ... so we are hoping that plays a factor too.

Ah, so what I wanted was a bank buy-out, which may not be possible. That would all depend on new projects closed, projections for 2010, etc.

The interesting part is that these loans were used in part to fund employees for a project that will start production in 2010. So the last 18 months, existing customer orders were below expectations when the loans were made. Projections for 2010 and beyond are very solid. If we could get a feel for what the bank would accept, I may be able to find another bank willing to do a new loan, given an adjusted balance sheet, etc.

Yes, it will cost the bank 3X your fees, but I'll bet that the bank has more than 3X the cash than you have.
Just curious, what amount of fee did your Atty quote you for filing the Ch 11?

< 200K in mtgs isn't a lot to be haggling over for very long. Pretty cut and dried animal, really. I guess my question really is, are you being realistic in the outcome that you expect? What amount of hard asset collaterol is behind the mtgs now? If the number is way beyond 200K, then maybe you aren't being realisitc at all. Plus that personal guarantee is hanging out there.

Many times folks want a bank to do X, Y or Z, however if they were the bank and had their skin in the game on the banks side of the table, they wouldn't play the hand quite like they wish for it to come out. (being unemotional and detatched from the problem). Why would the bank be willing to do what you want them to do??? (that is the $ 64K question). Answer that and you may be on your way to a settlement. Usually the only good reason is if the bank is scared that they will lose big time if they don't accept the settlement. Keep in mind banks aren't afraid of foreclosure, or even default, as long as there is plenty of collaterol behind the loan. GL

[justasking]

Many times folks want a bank to do X, Y or Z, however if they were the bank and had their skin in the game on the banks side of the table, they wouldn't play the hand quite like they wish for it to come out. (being unemotional and detatched from the problem). Why would the bank be willing to do what you want them to do??? (that is the $ 64K question). Answer that and you may be on your way to a settlement. Usually the only good reason is if the bank is scared that they will lose big time if they don't accept the settlement. Keep in mind banks aren't afraid of foreclosure, or even default, as long as there is plenty of collaterol behind the loan. GL

But there isn't enough collateral for any bank that has told you they don't want you as their customer any more. They want out ... and collaterol goes home at night, we are a knowledge company. They bet we could finish our project and go into production without the recession. Didn't happen. So you win some, you lose some.

This bank was also bought out about 2 years ago and thru the rumor mill, told to clean up its books. It may be too leveraged. So we are just one of many. Also we are an communications knowledge company in the land of farmers ... they are not comfortable with us. So there is more going on here that just dollars and cents.

[Mensa1]

But there isn't enough collateral for any bank that has told you they don't want you as their customer any more. They want out ... and collaterol goes home at night, we are a knowledge company. They bet we could finish our project and go into production without the recession. Didn't happen. So you win some, you lose some.

This bank was also bought out about 2 years ago and thru the rumor mill, told to clean up its books. It may be too leveraged. So we are just one of many. Also we are an communications knowledge company in the land of farmers ... they are not comfortable with us. So there is more going on here that just dollars and cents.

Maybe, maybe not, but in the end it is always about the $$$. Don't kid yourself.

What the bank will look to is how are they secured? They are secured by more than your biz, aka Pers Guarantee. So it boils down to what "other collaterol" that they have a pledged interest in, such as your home, or other hard assets. So what are those? if you are liquidated, including personally, what does the bank stand to receive? That is ALL that it comes down to in the end.

The fact that the bank was sold/absorbed several years ago may be material and maybe not. They will still attempt to convert security of cash assets, in fact it is an obligation for them to do so. Shareholders... don't forget them. Bankers can get fired for doing things that make NO financial sense, so you need to look at this objectively, as an outsider and see if what you expect makes any sense. Hard to do when you are emotionally tied to the expected outcome.

[justasking]

Maybe, maybe not, but in the end it is always about the $$$. Don't kid yourself.

I hear you. I realize it is all about the money. I do hear you.

The question is how hard do they want to work for a small amount of $$. And I am talking small. Probably under $50k. Personal guarantees are there, yes, but this bank also has a second on our homestead too, outside of the biz. BUT not the first.

So do they want to take it all down or no? That is the 20M question