Bankruptcy Law/House and car and business
QUESTION: I am in the middle of a financial landslide.I am the only member of an LLC which has taken huge losses due to the economy. It is a housecleaning business, and that is a luxury item, first thing to go in other people's budget. Also one of my employees stole some items and that caused a cascade of problems, including loss of several customers. To me personally that means less and less income. Furthermore, as a result of the landslide I was pretty much living on credit cards the past year... maxed out...and now owe more than ever, roughly 40K - 45K in consumer debt. I own my home (it has a considerable mortgage) and own my vehicle outright. I use the vehicle for my business/work. The approx value of the car, according to Edmunds, is $4300. My home has a mortgage of $145,000. It was recently appraised at $210,000, though for tax assesment it is at $110,000. I paid 107k for it in 2006, did considerable upgrades and refinanced in the upgrades, which is why the mortgage is higher than what I paid for the house. No savings whatsoever. Whew... my question is this: if I go Chapter 7, which I am considering, will I be able to keep my home? what about my car? I need both! Will my business be able to continue on? It has zero resources as well but does have good internet presence and an 11 year niney nine percent good repution. What are my options here. I can just pay my mortgage this month due to this employee theft fiasco, and definately will not be able to keep up my consumer debt payments unless I win Lotto. Thank you in advance. PK PS As if this weren't enough, I am in middle of a personal tax audit for 2011 and did not yet do 2012, waiting for the audit to complete first.
ANSWER: It sounds like you're a candidate for chapter 7 all right. As to that crooked employee that stole and no doubt you made good on the theft you need to file a police report and when you file bk, list that account receivable as a potential asset; now as to what you can keep, Florida has a liberal homestead exemption but you need to double check that with a bankruptcy attorney locally; same thing with the car exemption -- see what that is and whether you can exempt more using it as a tool of the trade -- possible in some states, not in others.
You should file your 2012 returns asap; you will be required to provide copies of your filed 11 & 12 tax returns federal and state to the trustee when you file the 7.
You do not lose the house unless you quit paying on it. Credit cards -- you have to not charge any more when you decide you're going to file, then not file for 90 days from the date of the last charge just to be safe. Hopefully your audit will turn out ok. Good luck on all this.
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QUESTION: Thanks for your response. I am not clear when you say the issue with my ex-employee and me paying for replacement of these items as week a paying for lock changes for about seven other customers would be considered an asset. Can you elaborate? I do have consultation appt. With a local bankruptcy attorney, for info gathering. The reality right nite is that I would have to Di this myself. I have zero funds with which to pay an attorney. one more item: is my business safe? It us an llc for which I am sole member.
The asset issue is legally called "subrogation"; if you pay a debt that someone else owes (the crooked employees owes the stuff back) then you have the right, by subrogation, to collect from the person whose debt you paid off -- in other words, an acct receivable owed by the x-employee to the customer is now owed to you when you pay the customer off. Be sure you list this as an asset and file a police report; and note that in the same area of the schedules.
Your interest in the LLC is what the trustee will be looking at -- if the LLC owns a Rolls Royce that could be sold, he'll sieze your interest in the LLC and force a sale of the Roller. Now however if all you have is well used janitorial equipment, what I do in those cases is estimate the yard sale value (cheap) of the llc assets and schedule your ownership interest in the LLC as if you owned that equip personally; make a an itemized list to show the trustee when you send him your tax returns and cover letter.
KEEP IN MIND that yours is a personal service business; thus UNLESS you gave a buyer a non-compete agreement, if someone did buy all your assets at a forced sale by the trustee, you could open up the very next day and compete against the buyer -- thus the goodwill, your client list all that is of no value without a non-compete agreement and, if asked by the trustee, do NOT be bashful about saying to the trustee that if he grabs that list and sells it you WILL contact all those people and compete against whomever he sells the list to -- you have the right to do that and doing so is NOT "failure to cooperate with the trustee" if they get nasty about it.
Ask the atty if there is a way to exempt this list to be safe. If you can, then value it at something reasonable, say $500 or so.
I would also list generically the "client list"; if you can't exempt it then value it as "unknown".
very important -- ask the local atty if you have a "wild card" exemption in your area and whether you can use it or not.
Note also: where you have lived for the 2 yrs prior to filing is the state exemptions you have to use -- I assume you've stayed put for the last 2 yrs but that might be a factor if not.
Finally filing fees can be paid in installments -- 306 total; we have clients pay 86 down and the rest over 3 months; that might help with the up front costs.