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Personally Guaranteed Business Debt and Bankruptcy

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  • 04-04-2008, 08:52 AM
    BStone1
    Personally Guaranteed Business Debt and Bankruptcy
    Okay- I have a huge multi-part question.

    We own a business- well, not own- we owe nearly $100,000 to the bank for our business- my husband is the personal gauranteer (sp?) on our secured credit. It's secured by a lein on our business vehicle and his Harley.

    Long of the short, our fresh disposable product business hasn't cash flowed for some time, we're behind w/vendors (need to have fresh product to keep the business going) and it has started to affect our personal lives in a big way financially. So- to get back in the black in our personal lives- hubby has taken a 'real job' where he actually gets a paycheck (yay!).

    We met w/a bankruptcy attorney who has advised us that we can file Chapter 7 since hubby is the personal gauranteer on everything. In essence, all of our store inventory and non-exempt personal assets would be liquidated, creditors paid off and debt discharged. Is my understanding correct?

    We're seeing bankruptcy as a last resort here and are trying to work with the bank (small town community bank). Basically, they're telling us to keep operating until we can sell. (We're maxing out our credit w/vendors so the bank wants us to finance more to pay vendors off so we can stay in business until the store sells).

    Bank wants us to sell the business for what we can. Then, sell the van and Harley tied to the note. Next, would be to liquidate all of our personal assets that we can live without- camper, 4-wheeler, dogs, etc. (The assets we do have are not worth much. Camper is worth $2,500, 4-wheeler $1,500. Dogs $1,000.) Finally, to sell our house and give them the equity we've earned from our house ($15,000 +/-) to pay off the note. Somehow this is a win-win situation? I know that they need to be paid, and we are obligated to pay them. However, how is that helping us at all? I know the note would be satisfied and our credit intact. But, if we file bankruptcy at least we can keep our assets.

    In addition, we'd still have the vendors to pay off (unsecured credit). So- the bank wants us to refinance with them to pay vendors off, sell the business, and sell all the personal assets we can to pay our note off. Our other option is bankruptcy. Which unfortunately, is looking more appealing.

    From what I understand, I'd rather file Chapter 13 and pay what we can back rather than risk losing my non-exempt assets with Chapter 7. I know that our debt would be discharged. However, we took the risk and created the debt. Chapter 7 freaks me out a little. I just picture a the 'repo men' coming into my house, rummaging and taking whatever appears to have value.

    I know that was really long. But- if you were able to take the time to read it, I'd appreciate any input. Feel free to correct any misunderstandings I may have regarding bankruptcy laws. Thanks!

    Ohh.. Sorry- one more question. If we sell our house while in either Chapter 7 or Chapter 13 what would happen to the profit we made off the house? Do we pay it to the bankruptcy estate or is that protected? Thank you!
  • 04-04-2008, 09:08 AM
    gigirle
    Re: Any Advice?
    For starters....Do NOTHING with the bank without the advice of an attorney. Making any deals with them could hurt you in bankruptcy if that's what you choose to do. So don't do it just yet. The bank is gonna say, and do what is their best interest, not yours. If the security of the loan is only in your husbands name, then your husband is responsible for it legally. If your not tied to it financially (with loans, etc), then don't become attached to the debt by refinancing your joint house. Hope this makes sense.

    I think you need to do more research on the bankruptcy option. You can keep assets with both 7 and 13. Chapter 13 is wage dependent and if one attorney already said you can do 7 then you should consider it. Also, you can file an individual bankruptcy instead of a joint one, which if your husband ended up doing won't necessarily hurt you.
    You can also consult another attorney, there are tons out there. Make sure that when/if you do talk to another/same attorney that you inform them of the options the bank gave you. They will be able to advise you if it would be in your best interest.
  • 04-04-2008, 10:14 AM
    BStone1
    Re: Any Advice?
    Thanks for your quick reply.

    Couple other questions-

    Are the all of the assets that we have claimed protected? Or just to a certain dollar amt? I've checked out my state's exempt assets and am not sure about the camper, 4-wheeler, dogs. I'm having trouble interpreting. (Consult the attorney, I know). Ugghh... I never in a million years imagined we'd be at this point, personally or professionally.

    Thanks for reminding me about the bank. They've played the good guy card to the hilt. It's hard to deal w/them and think of the negative effects. We know the Pres, VP, and our loan officer personally. We all have kids the same ages, go to the same church, civic involvement, etc. But as you've said- in the end, they're just looking out for themselves. We'd really like to have an attorney to deal with everything with them but can't afford someone else's services. Maybe check with the consulting bankruptcy attorney?

    So even though all of our business operations have been 50/50, because my husband is the personal gauranteer- he should file just individually? That'd save my credit?

    I know.. I should follow your advice, write down all my questions and fire them off at an attorney who can give me answers and options. This is just so much more convenient! (and I'm able to waste time at work...)
  • 04-04-2008, 11:37 AM
    Mr. Knowitall
    Re: Personally Guaranteed Business Debt and Bankruptcy
    Quote:

    Quoting BStone1
    We met w/a bankruptcy attorney who has advised us that we can file Chapter 7 since hubby is the personal gauranteer on everything.

    Whether or not he qualifies for Chapter 7 depends in no small part upon his income. If he qualifies for Chapter 7 under the current means test, I suspect that your lawyer is correct to recommend it.
    Quote:

    Quoting BStone1
    In essence, all of our store inventory and non-exempt personal assets would be liquidated, creditors paid off and debt discharged. Is my understanding correct?

    If he's the guarantor, it will be the business assets and his non-exempt personal assets that are subject to being liquidated. If you do not join the bankruptcy, your assets (including your share of the marital estate) should be safe.
    [quote=BStone1]Basically, they're telling us to keep operating until we can sell. (We're maxing out our credit w/vendors so the bank wants us to finance more to pay vendors off so we can stay in business until the store sells).[quote=BStone1]
    If there's a chance of selling, it's great to try to sell. If not, don't dig yourself into an even deeper hole. (It's called "throwing good money after bad.")
    Quote:

    Quoting BStone1
    Bank wants us to....

    Your bank is recommending a plan that will maximize how much it receives and, ideally, have you refinance with another lender so that your bankruptcy will no longer affect them. That's in their best interest, but it does not appear to be in yours. Also, right now the debt seems to be largely that of the business and your husband. The bank's plan would appear to shift that to you and your husband, and will probably eventually force you into the bankruptcy as well - something you may presently be able to avoid.
    Quote:

    Quoting BStone1
    I just picture a the 'repo men' coming into my house, rummaging and taking whatever appears to have value.

    Your husband will file an inventory of his assets with the court, and the trustee will consider whether to pursue certain items of property. Discuss this with the bankruptcy lawyer, as it's not as scary as you think, and you (if you're not a party to the bankruptcy) may even be able to purchase your husband's share of certain property if you have the (separate) resources to do so.
    Quote:

    Quoting BStone1
    If we sell our house while in either Chapter 7 or Chapter 13 what would happen to the profit we made off the house? Do we pay it to the bankruptcy estate or is that protected? Thank you!

    For Chapter 7, wait until after the final discharge or work closely with your bankruptcy lawyer. For Chapter 13, it depends upon how soon the house is sold after you start the repayment plan, and what you do with the money (e.g., buy another house, or bank it) - again, talk to your lawyer.
    Quote:

    Quoting gigirle
    View Post
    The bank is gonna say, and do what is their best interest, not yours. If the security of the loan is only in your husbands name, then your husband is responsible for it legally. If your not tied to it financially (with loans, etc), then don't become attached to the debt by refinancing your joint house.

    Agreed.
    Quote:

    Quoting BStone1
    View Post
    Are the all of the assets that we have claimed protected? Or just to a certain dollar amt? I've checked out my state's exempt assets and am not sure about the camper, 4-wheeler, dogs. I'm having trouble interpreting.

    You have an exemption up to the dollar amount(s) specified for your state. I don't think you followed the instruction to identify your state, so I can't say further.
    Quote:

    Quoting BStone1
    We'd really like to have an attorney to deal with everything with them but can't afford someone else's services. Maybe check with the consulting bankruptcy attorney?

    It's not like they're left "high and dry" in bankruptcy - they can make a claim against business assets and your husband's non-exempt assets. Will they get more if you hang on, sell the business, etc.? Probably. But I'm not sure what there is to negotiate, unless they start offering you the opportunity to settle your debts at a discount (e.g., 50 cents on the dollar).
    Quote:

    Quoting BStone1
    So even though all of our business operations have been 50/50, because my husband is the personal gauranteer- he should file just individually? That'd save my credit?

    Right. By his filing, you could largely insulate your credit from the effects of the bankruptcy.
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