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  1. #1

    Default Can You Back Out of a Bankruptcy

    My question involves bankruptcy in the state of: MICHIGAN

    The following is all HYPOTHETICAL. Let's call it a story for a book and i need good advice as to how to finish the story!.......


    I have a wierd case... Wife and I want/needed to do chapter 7.

    We have a house, old car, minor assets with the exception of a business (sales). It's our only means of support since I am on Unemployment.

    Several years ago we opened the business (I did open the business, so I am the owner of the LLC). We never filed an operating agreement. When we did our taxes, one year my tax guy showed the owner of the company as my wife, next year as me. During the entire time we have owned the company, i never got paid for anything, she is the one that runs it, and is licensed to do so. She is the broker. All checks went to her (owner draws on a monthly basis, NOT for each sale).

    We discussed bk with a lawyer and got them the information, going back and forth with them this took 7 months before they said they were ready! Gave them all my information and on the form they had me fill out, I told them I was the owner of the company. When they were finally ready I said let's do it. One small snag.. Our company had the best two months ever. We had 14k in the account. So when the lawyer asked how much the company was worth, we discussed and came to the conclusion there is no real value (jus some off furniture, no stock etc) and it must be worth what we have in the bank.

    He kept telling me the whole time they can't touch a corporation, you will be fine.

    Then when i wanted to file (since it took so long to file), he said why now? I said, it's been so long, can we do it. He said yes, but had to check on the business. After a few hours he said we can exempt the money from the business... I said, good, let's do it!

    Now, two months after filing, my lawyer is now telling me that She is the owner and not me (since she is the broker, and I don't even worth there), I said whatever, but it's in my name, I don't care. They said, the trustee wants half of the money that was in the account since we can't exempt all of it since it's mine (the trustee changed his mind, after seeing paperwork).

    My lawyer says we need to give them 7k! I only have 4 k left in my account, i didn't just spend it, it was monthly bills and expenses... It was a good couple months and we had to pay up our bills!

    To top it all off, all sales since we went into bk are according to my lawyer now going to be taken by the trustee as well!

    So now, I am in a dilemma... My lawyer is going to talk to the Trustee and try to work something out, but essentially, I am screwed for at least 7k! Not to mention the 4-5k of closings we had that we had to pay out to our agents (the company only makes a small pct of each closing by our agents)....

    This all because my lawyer didn't think the trustee could take money from a business even though i am the only true owner. (We have always run it as both are owners, both on bank account, etc)

    This is the same lawyer that had a puzzled look on his face when trustee said he wanted any money from closings since bk started.
    Same lawyer that had a puzzled look on his face when trustee told us that we can't get rid of 2nd mortgage lien (was on paperwork as being included in discharged debts).

    There are two lawyers in this firm, we are now working with the senior one, as it seems the first guy didn't have the experience to deal with this.

    My question is simple (now that u know the background info):

    Can I back out of BK, go back in now that my account is so much less than it was and save that 7 k? Considering is the trustee does want the full 7k, not to mention any money since, then we won't have enough and will have to either work out a payment arrangement or go out of business!

    I don't mind paying my share, I feel horrible about the creditors we have left out to dry! Truly we do. Up until the time we realized we were over our head, we NEVER made a single late payment. When that time came, we had over 100k of open credit and could easily have kept using the credit, but we didn't. We stopped. It has taken 3 years to get to the point that we know we can't make up for the old debt and need a fresh start. We tried!

    So I don't mind paying some, but we could lose our only source of income because my lawyer didn't know what he was doing..

    What should we do? Stick with the guy and hope we make it without losing our business?

    Thanks in advance!

  2. #2
    Join Date
    Sep 2010
    Posts
    19,901

    Default Re: Backing Out of Bankruptcy Ch 7. Bad Advice from Attorney

    We don't do hypotheticals. book assistance, personal fantasies, or other things divorced from reality.

    Presuming this is reality, you either got very bad legal advice or you misunderstood it.

    Why on earth would a secured loan be wiped out in bankruptcy? The only thing that could possibly happen is that if the senior loans greatly exceeded the value of the property it might be, but certainly the second mortgage can try to do all they can to avoid that.

    While they can't touch the assets of the corporation directly, if you are treating your LLC as an S corp or a disregarded entity, any "profits" from the company will flow through to you as income and hence can be figured into the bankruptcy. Further, the membership in the LLC itself is an asset. While it's unlikely it has much market value would attract attention, it is all in the play in the bankruptcy.

  3. #3

    Default Re: Backing Out of Bankruptcy Ch 7. Bad Advice from Attorney

    So it's not the fact that I had 14k in the account, it's the fact the lawyer (yes, i agreed) said the company is worth about 14k because that's all the assets of the company. Since I am the sole member therefor the trustee may say that half of that (since wife can't use exemptions on it, and I had only 7k left) is fair game to ask for.. As in, give me 7k (half of the worth of the companY) and i won't liquidate the company for half the money)..

    Does that about sum it up?

    So considering I have much less in the account now, dropping out of BK and starting over wouldn't make much difference, i already stated (my laywer) how much the company is worth. So I can't change that?

  4. #4
    Join Date
    Sep 2010
    Posts
    19,901

    Default Re: Backing Out of Bankruptcy Ch 7. Bad Advice from Attorney

    I suspect you should just follow along with your lawyer. It appears that you're not listening to me so you probably weren't listening to him when he talked.

    The "account" is meaningless. Except as needed to satisfy debts of the corporation, that money needs to transfer to you (100%) and is subject to the actions of the trustee.

  5. #5

    Default Re: Backing Out of Bankruptcy Ch 7. Bad Advice from Attorney

    Flyingron,

    I am sorry if I sounded as if I am not listening, I simply wanted to put it in words both I and my wife can understand. Your response was a bit rude... I am sure you can recognize this is a tough time and I am doing everything in my power to secure my families financial future.

    Again, If I understand what you said (truly trying to understand): I have a company that I stated is worth 14k. Since I can only exempt 7 K of that, the trustee will ask me to give him(creditors) 7k. Since i don't have any assets other than the company, I will have to pay myself 7k and give that money to the trustee. Does that sound right?

    Another line of questions if you can help.

    My wife is the broker. If an agent sells something they get a split of commission.. Rest goes to company for bills, paying their insurance, memberships etc.
    Question #1 - Does Trustee have any claim to money earned by agent's, or the commission the company get's for one of their sales?

    My wife is the broker, but she also sells too. When she sells something, we have always just put the money in the account and pay bills with it. She is NOT paid per deal, she get's a monthly amount for salary (owner draw). Since we filed in Aug, she has had 3 closings with about 4k of commission.
    Question #2 - Does Trustee have any claim to this money?

    At first my lawyer said no to both questions, now he doesn't know. he is going to call the Trustee and ASK.

    Question #3 - Shouldn't he know?

    Again thanks in advance!

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