Business owner thats met with a lawyer for a consultation but he couldn't provide all answers

[anon]

Hi all,

Please help.

I am a business owner. In the process of starting my business - which
I own 100% as a sole prop., I have amassed quite a bit of debt. The
business is more of a labor of love than a profitable business
unfortunately. I've been at it for 5 years, and I currently
profit-after-expenses about $500/month. My only expenses are VERY real
expenses. The basics of a house payment, and food, really. Giving up
my business or cutting expenses is not an option. I provide the
community where I live with a valuable free service that many people
appreciate.

I can not file a Chapter 7 bankruptcy according to the lawyer that I
made an appointment with as I could risk losing my business. There are
specifics in my case that he could not answer in the initial
consulation, however, as my situation is complicated that still left
me with many questions.

But the straw that broke the camels back is that I'm now facing a
lawsuit where I could receive a $45,000 judgement against me.
Paperwork for the lawsuit has been filed.

This is in addition to:

+ A judgement already received against me for $4,000. A lien has been
placed against my business property.
+ $20,000 in personal unsecured credit card debt; all accounts have
been closed for about a year. I have no credit cards now.
+ I haven't filed taxes since 1999. I'm unsure what amount I owe the
IRS. I do have a number of records that show my expenses have been
essentially 100%+ of my income. I have been living hand-to-mouth for
the past few years starting this business; my reason for being unable
to afford an accountant.
+ A $20,000 fine from a branch of the US federal government that I've
received. I'm not sure if this is excusable via bankruptcy and I
probably shouldn't discuss this publicly. If someone replies here via
an email that knows more about how bankruptcy affects various
government owed monies, I'd LOVE to reply back via email to ask about
this.
+ About $1,000 in hospital bills/emergency room. This is about a year
old.

So I might have close to $100,000 in debt if all of these are proven
legitimate debts. But none are secured (unless the judgement debt is
considered secured).

Here's why I can't file a chapter 7:

+ The business I own is 100% paid for after making 5 years of very
aggressive payments. Approx. value now of $70,000. I paid $58k.
+ My house was $55,000. I've paid it down to only owing the bank
$37,000; house payments are current

Is Chapter 13 a good option for me? If it wasn't for the pending
lawsuit, I wouldn't even consider it, but I am extremely concerned
about my home/business and future. I don't want to have worked nonstop
for 5 years - very hard sacrificing work - and lose everything.

How much of the $500 or so I make in profit per month would go to the
court system? Or is that even too little to quality for Ch 13?

Would I even have to go to court for this pending lawsuit? How much of
a percentage would the person suing me recover?

At this time, I am negative in my bank account. I do not even have the
lawyers $500 down payment to proceed but I can probably get this.
Please provide me with some good advice to go on so I can keep what
I've been working for, and hopefully keep it growing into a profitable
and successful business.

 

[anon]

If someone replies here via
an email that knows more about how bankruptcy affects various
government owed monies, I'd LOVE to reply back via email to ask about
this.

Er, since this sounds confusing since I'm posting with an invalid
email and you can't email me, what I meant to say is that if someone
replies back here with a valid email address, and if I could email
them privately with this specific question and provide my valid email
address, I would appreciate that.

Jason

 

[Brett Weiss]

The only problem with a Chapter 13 is the Chapter 7 liquidation test. This
means that a creditor in a Chapter 13 would have to be treated at least as
well as it would be treated in a Chapter 7. Since the Chapter 7 Trustee
would receive about $70-80K from the liquidation of your business and house,
generally speaking, this sum would have to be paid to creditors over 5 years
to allow you to keep both.

The fact that you can't afford to pay the $1,300+ per month (including
Trustee's commissions) that would be required is irrelevant.

--
Brett

*****************************************************************
* Personal Injury/Malpractice Bankruptcy *
* *
* BRETT WEISS, P.C. *
* Attorneys at Law *
* Maryland, D.C. and Federal Bars *
* (e-mail address removed) *
* www.brettweiss.com *
* *
* Small Business Estates & Estate Planning *
*****************************************************************

The Small Print: This response is for discussion purposes only. It isn't
meant to be legal advice and you shouldn't treat it as such. If you want
legal advice, speak with a local lawyer familiar with your state's laws who
can review *all* of the facts and the law applicable to your situation.
*****************************************************************

 

[anon]

The only problem with a Chapter 13 is the Chapter 7 liquidation test. This
means that a creditor in a Chapter 13 would have to be treated at least as
well as it would be treated in a Chapter 7. Since the Chapter 7 Trustee
would receive about $70-80K from the liquidation of your business and house,
generally speaking, this sum would have to be paid to creditors over 5 years
to allow you to keep both.

The fact that you can't afford to pay the $1,300+ per month (including
Trustee's commissions) that would be required is irrelevant.

Brett (or anyone),

But to Brett, thanks for your reply. I've read this group for a long
time without ever posting and notice that you seem to be very helpful.

The business in question is worth more possibly than the sum of its
parts. The lawyer said that the value of the land/building would be
about $20k in our smalltown and seemed to act as if this is the number
that mattered.

It is true that a similar business, maybe even a better than mine, is
selling on eBay right now in our state for less than the price I paid.

This is a VERY smalltown lawyer, so I'm also thinking that the entire
scope of this case might be too much for him to handle too, but again,
I'm not sure.

I was disappointed with the initial consultation, unfortunately, not
just because things didn't go as I had planned but because I left
still feeling unsure about my possibilities for the future. Thanks
again for any advice/assistance.

 

[Traction]

It wouldn't hurt to talk with one or two additional attorneys who specialize
in bankruptcy. Then you'll know more about your options and whether the
attorney you saw missed anythng.

It could be that you are about to lose your house and your business, whether
you file or not, because you owe some nondischargeable debts to the IRS and
possibly to other governmental entities. If your secret debt is related to
a crime, that may also be a nondischargeable debt. One thing a bankruptcy
attorney might suggest is to sell your house and your business and use that
money to settle your nondischargeable debts with the IRS, etc. That's
because if you pay your other creditors forst, you will still owe the IRS
etc. afterward and won't be able to discharge those debts through
bankruptcy. But if you pay the IRS etc. first, then you probably will be
eligible to discharge the remaining debts through bankruptcy.

Another option might be to sell your business and sell your house and use
the cash to live on while these creditors try to track you down and collect
the debts you owe them. The problem then might be where to keep the money
because your creditors can seize your bank accounts after they get a
judgment against you.

The thought of having to sell your house and your business may sound awful,
but those are both things that your creditors probably can and will take
from you anyway.

But definitely talk with one or more additional bankrupty attorneys first.

Good luck.

 

[anon]

The thought of having to sell your house and your business may sound awful,
but those are both things that your creditors probably can and will take
from you anyway.

Thank you for your reply to my situation.

I'm interesting in this above statement...

How possible is the above? I thought as long as you were current with
home payments, and it's your only home, that was pretty safe.

I've had the credit card debt for a while, and it's never been a
threat on my home/business.

The current judgement I have against me for the $4k range hasn't been
a threat on my home/business. I didn't even really know that I had it
against me (I didn't go to court so they won by default) until I
recently ordered my credit card. I'm aware that they could try to take
something out of my bank account, but there is never much there
unfortunately.

So what could be a threat that could force me out of my home or
business?

I believe I can settle with the IRS, as again, I really haven't made
anything, obviously. I can't imagine owing them much of anything after
filing tax returns.

I will take your advice and schedule another first meeting with
another attorney.

 

[JoblessDave]

Thank you for your reply to my situation.

I'm interesting in this above statement...

How possible is the above? I thought as long as you were current with
home payments, and it's your only home, that was pretty safe.

It depends on the law of the state in which you reside. In California, a
creditor can force a sale of a homestead property if the proceeds will be
enough to pay off creditors with security interests in the property plus the
available homestead exemption (which varies with age, marrage status and
income). After the secured creditor(s), homestead exemption, and judgment
lien and costs of collection are paidi, if there is anything left that would
also go to the judgment debtor.

So what could be a threat that could force me out of my home or
business?

The property that can be exemted from judgment creditor liquidation is a
matter of state law. In California, a person with significant home equity
could not exempt a business interest (except a relatively small amount for
tools of trade).

 

[anon]

It depends on the law of the state in which you reside. In California, a
creditor can force a sale of a homestead property if the proceeds will be
enough to pay off creditors with security interests in the property plus the
available homestead exemption (which varies with age, marrage status and
income). After the secured creditor(s), homestead exemption, and judgment
lien and costs of collection are paidi, if there is anything left that would
also go to the judgment debtor.

Okay, thank you again! This is helping.

What makes someone a secured creditor?

I had never signed/stated that the person suing me is a secured
creditor or has any kind of security interest in anything other than
his own property. This is someone that I had a business agreement
with. I was leasing-to-own a business from him and the deal fell
through as I ran out of money. He has recovered his business and all
his business assets (he did it without the law; just came in and took
it when I wasn't present, and I made no objection), and is suing me
for past-due payments. Is he secured/unsecured?

Thank you again to all.

 

[anon]

It depends on the law of the state in which you reside. In California, a
creditor can force a sale of a homestead property if the proceeds will be
enough to pay off creditors with security interests in the property plus the
available homestead exemption (which varies with age, marrage status and
income). After the secured creditor(s), homestead exemption, and judgment
lien and costs of collection are paidi, if there is anything left that would
also go to the judgment debtor.

Oops, nevermind, I reread this paragraph again. Forget my questions
about secured creditors/unsecured. You are saying that in some states
ANY creditor can force the sale of a homestead property if the above
conditions are met??

Wow. That's amazing and frightening. I'm in Mississippi. Can you
provide more information now?

I actually share my home with another elder family member. While I am
a cosigner on the loan, I am NOT actually the person that is taxed
each year for property tax. The home is registered in the county under
one family members name who is the other cosigner with the bank (not a
wife; extended family). When my home was in jeopardy for back property
taxes, they sent all notices directly to her (we've since taken care
of this).

Again I realize my situation is complicated, but as a result, I might
not actually own any equity in the home, and might only have my
business to worry about. Is that exempt in any way? It's my only
source of income.

 

[JoblessDave]

Oops, nevermind, I reread this paragraph again. Forget my questions
about secured creditors/unsecured. You are saying that in some states
ANY creditor can force the sale of a homestead property if the above
conditions are met??
Yes.

Wow. That's amazing and frightening. I'm in Mississippi. Can you
provide more information now?

No, sorry. I'm unfamiliar with MS law.

Again I realize my situation is complicated, but as a result, I might
not actually own any equity in the home, and might only have my
business to worry about. Is that exempt in any way? It's my only
source of income.

The best thing to do now is discuss this with an experienced local
bankruptcy attorney.

 

[Traction]

....... I'm in Mississippi. Can you provide more information now?

Here's a link regarding bankruptcy exemptions for Mississippi.

http://www.bankruptcyaction.com/msexemptions.htm

You also wrote:

"I actually share my home with another elder family member. While I am
a cosigner on the loan, I am NOT actually the person that is taxed
each year for property tax. The home is registered in the county under
one family members name who is the other cosigner with the bank (not a
wife; extended family)."

Sounds like you don't own the home you live in. If it is owned by another
person, even if you are a co-signer on the mortgage, I don't think any of
your creditors can take the property from the real owner (who is not you).
There may be an exception if you have a lease/purchase agreement or other
arrangement that gives you control over the property. But, that's another
story and is much more complicated.

So, all of the homestead information probably doesn't mean anything and
isn't necessary since they can't take the property from someone else to pay
your debts. If you file bankruptcy, your personal liabilty for the mortgage
could be discharged because you are a co-signer on the mortgage.

I'm glad you will be talking with some attorneys who specialize in
bankruptcy law. It could be that the first attorney didn't realize that you
do not own the home you are in and that you are just a co-signer on the
mortgage.

I know you said your business could be worth 50, 60, 70 thousand dollars,
but depending on the type of business it is, it may be worth far less than
you think. For example, if your business is primarily a service business
and you are the only person who provides the service, the business may not
be worth anything to a potential buyer. That's because without you there
would be no business. You mentioned something about the business only
earning you about $500/month right now, which is the compensation you get
for all the work you do. Unless the business has a lot of assets, or some
really valuable repeat customer list (customers who will stay on even if you
leave), no one is going to pay much for any business that they have to work
at just to get $500/month. That's only $6,000/year. I can't magine how a
business like that could be worth 50, 60, or 70 thousand dollars to an
outside party. But again, it depends on the type of business it is, the
assets of the business, and on a lot of other factors.

If you owe very little to the IRS, that's no big deal. I thought you were
implying that you owed a lot in back taxes, penaltes, etc.

So see those attorneys ASAP. The clock is ticking because the new
bankruptcy law goes into full effect on October 17, 2005.

Good luck.

 

[Guest]

Thanks to everyone for their past advice about a month or so back if
you remember my thread here. Here's my recap:

I am a business owner that received a judgement against me for way
more than I could ever pay. My bills are all maxed and I make hardly
anything.

I live in the business that I own.

I was asking for advice if I could file Chapter 7 and include my
business as a homestead exemption.

I did file in time to file under the old law. I filed Wednesday.

Now here is the problem: I filed for Homestead Exemption back in 1999
for my business. I know for a fact that it was under HE back in 1999
and 2000.

I went down to the courthouse today to verify that I was under HE. It
turns out that I am NOT.

HE was the only way that I could see the possibility of keeping my
business under a chapter 7. It IS the place that I live. It's the only
property that I have/own. All of my assets are exempt because I have
so little. I don't even have a vehicle.

The person that has the judgement against me is going to be VERY
aggressive. If he finds out that I do not have HE, he is going to
proceed very swiftly. He has an unlimited amount of money and lawyers.

What should/can I do?

The courthouse says that I can't do anything to file homestead
exemption on my property until January 1st despite the fact that I've
lived there more than 50% of the time. I will have a courtdate in
November for my Chapter 7.

Some thoughts:

Is there a way that I could get an extension to push the bankruptcy
court date to after January 1st? (Or does it even matter? Would I have
had to have had HE *when* I filed as I thought I did?)

Will they even check to see if I really/legally have HE this year on
this property?

Will I have to cancel my bankruptcy under old law and attempt to
proceed under new law? Then again, with the person having a judgement
against me receiving his notice, he might attempt to aggressively
proceed legally if I did this...

Is there anything my lawyer can do to get HE faster?

How should I possibly proceed? Any advice/thoughts welcome. I just
don't know what to do now. I don't want to discuss this with my lawyer
yet in case I say the wrong thing that makes him HAVE to do something
that would be against my best interests (like inform the court
immediately that I do not have HE in my property)

Thank you again if you can help me with anything that will ease my
mind. I'm realizing this is a huge possible omission that could cause
me much grief and blows up the very basic fundamentals of my plan to
work things out.

 

[Nabeel]

Your case is very sensitive to be very honest. You seem to be caught from everyside unfortyunately. I have some recomendations for you in the future:

Whenever you business come up again, use online selling tools like ebay amazon ect.

keep in mindn hiring an accountant is not difficult today you can use freelancer com to hire online accountants. They are cheap and lots of companies in your world use them. I also beloing to that community.And i am a qualified Chartered Certified Accountant (ACCA).

Now your business: Considering the situation you mentioned, dont look at the accountant at the moment instead i would recommend you to take services of a well repurted atorney to save lots of expense that you may incur in future as panelties..Its better to spend a bit more on lawyer instead of paying thousands of dollars against the lawsuit. Dont get panic, keep in mind these lawyers have solution for every problem so use them. Hope this helps.