Expert: Michelle Dunn - 11/5/2010

Question
In 2006, my partner of 10 years and I started an S-Corp and purchased a Mini-mart.  We put both of our names on the corporation, because it was something he wanted to do and I had pristine credit.  At first, things were zooming along.  We were learning how things worked and really getting a handle on 'the business.'  Things were going so well, we decided it was ok for me to quit my job of 7 years. (1st mistake)  The first year after this still seemed ok even though we were racking up the business credit cards.  They were always easiest to turn to if we felt we needed a couple extra hundred for these items or a couple extra hundred for those.  (2nd mistake) As the monthly payments started racking up, we knew we were getting into trouble, so we opened a 2nd smaller store to, hopefully, alleviate some of the burden of me not having an income.   We soon discovered this still wasn't enough and I started a new job.  The pressure was still high and the total monthly credit card payments were close to $3000/month.  We were able to get reduced payments from some of them, but when we were still having problems and asked for more help we were denied.  One credit card representative said, 'we can lower your $600/month payment to $550/month.'  We were frustrated and spent and we made the biggest mistake of all and just stopped paying 6 creditors in August of 2009.  (4 business 2 personal in my name) We still have 4 or 5 that we continue to pay, but their minimums are considerably less and we just keep trying to push forward even though it feels futile.  

The phones won't stop ringing at the stores, our home or our cells.  I walk around nauseous all day and just feel like I'm in a vacuum.  Last spring, my partner and I were in pretty bad shape and we removed my name as an officer of the corporation, started switching everything over to him solely and finally applied to dissolve the corporation. We already got one letter recently that a judgement was being sought on him for a credit card that I actually filled out and applied for.  We also think there have been two individuals in our store making notes about our inventory and taking pictures of the front of the store.  This isn't a big 7-eleven type store, it's a small stripmall mini-mart.  Our house is worth 1/2 of what we owe (a negative amoratization loan that will max out in the next couple of months,) it's only in my name, and our cars are leased.  My family is hoping to just assume the lease on the mini-mart and take it over if the landlord will agree to reassign the lease to them as a sole proprietor.  The fear of the unknown is the worst part about all of this.  I've read post after post here and while a lot cover many different aspects of what I've detailed above, I know our situation is kind of unique.  We're gay, we're not married, some things are in my name, some his, a lot of the credit cards were personally guaranteed by me with him as an authorized user.  We don't live in a flashy way and we're doing everything we can to stay afloat.  We think our best bet is to simply sell all the product down to nothing, then have my family take it over and make a go of it.  It makes a profit, we just have too many bills for it to compensate.  My partner is more optimistic about life in general and lives for today.  I am the person constantly worried about the future and feel like I've basically messed up my entire future.  I used to have an 800 FICO score and could have anything at any time; now I feel like there won't be any more home buying, no credit cards, no loans of any sort, higher car insurance, etc and I don't see a light at the end of the tunnel.  Is there any hope for us?  Where do we even begin?  2 personal bankruptcies?  At what point should you actually start it?  Business bankruptcy?  Who can afford it?  Will we get certified letters to say something's about to happen like my partner just did or could we be blind-sided having wages garnished, bank accounts frozen or inventory seized without any warning, etc?
We don't want to give up, we just want to be given some direction, so we can feel a little more back in control.  We know we've made a lot of really bad decisions, but I can't believe the rest of our lives are ruined by them.  Any help would be greatly appreciated.

If I've not been clear about anything, I'm more than happy to elaborate, I just don't know where else to turn.

Answer
Steve,

After reading through this is your question asking me if you should both file personal bankruptcy?  
You may want to sit down with an attorney with all of your paperwork, they can tell you what you can both legally do in this situation.  The laws are different in every state, so an attorney familiar with your state laws would be your best route.
Good luck.