Expert: Christine Janklow - 11/22/2010

Question
QUESTION: Hello, my name is Nicole,
My question is should I file Bankruptcy before I open my business? I had a foreclosure in 2008 and also a car repo. I also have other small collections on my credit. At the time I lost my house I could not afford to pay any of my other bill such as (NM electric/gas)phone, cable, etc. Due to job loss, I gave up the car to keep the house and that did not turn out good. However at this point I still having trouble finding a job so I have decided to open a small business with help of a co signer very limited liability business. The house was and all debts owed are of course on my credit the house was placed on my credit as a foreclosure twice. What's the best thing to do? I want to start the business to correct the credit and to have money to pay some debtors off. Any help would be greatly appreciated. The business will cost around 5k to start of course not enough to pay off my debts if I had the money to pay them off I would. Thank you for all your help, Sincerely, Nicole Miller

ANSWER: Nicole:
Thank you for your inquiry. Let me first preface this answer by indicating that I am not an attorney nor is this intended to be a substitute for legal counsel. Your situation is unfortunate and all too familiar in these current times. However, the decision to file for bankruptcy is too intimate for anyone but yourself, spouse and legal counsel to decide upon. There are many benefits as well as downsides to actions related to that decision. My comments are related to your decision to open a business for the benefit of credit improvement. Although owning your own business for many is a lifetime goal, it surely does not come with guarantees of financial success or security. Before you embark on this option you need to do your homework. In other words if you are opening a donut shop and it costs only $5K to get started, than what do you need to operate? What kind of competition is nearby, What cash and labor costs during year one? and what will it take to become profitable. Know the industry, competition, marketplace, vendor and supply costs and availability, insurance, etc. before you spend a dime. Most start ups take 1-2 years to realize a profit and may require many unanticipated costs along the way. During that time the business may not have the available cash or capital to pay owners their "desired" salary. If you think that you will be able to earn more at this than working for someone else and have the capital or savings available to live on until you can take money out of the business -proceed with caution. Otherwise in your situation it may behoove you to seek immediate financial planning (consumer credit counseling) and legal advise so you can get finances stabilized and begin repairing what was previously impaired. If you decide to go ahead with the business, I strongly recommend you pay a visit to a counselor at your local SCORE office (visit www.score.org) for a business plan and get good legal advice regarding both the BK and business venture. Taking educated steps forward are key to successful outcomes.

Best of luck.

Christine Janklow

---------- FOLLOW-UP ----------

QUESTION: Dear Christine Janklow ,
I thank you for your advise and quick response. I guess my biggest question is will the garnish me or levy my business bank account??? What legal action could they take do I have a fighting chance?
Sincerely,
Nicole Miller

Answer
Nicole:
Again, it is highly advisable that you seek counsel with regard to timing of your financial plans benefits of bankruptcy and particularly creditors rights. However, generally speaking once a bankruptcy is filed, creditors must stop all collections actions against you. If the business exists at that time and is considered an asset of yours than it is possible creditors may have some claim. If you prefer to settle your debts rather than go through the BK, that too may stop further attempts to collect and satisfy your remaining creditors with less money than is owed. I would seek professional services on this as well and only if you have enough money to begin to settle as your debts are clearly aged.  Lastly, if you were employed creditors would need to obtain a judgement and only then could they attempt garnishment, which also must deduct your cost of living, dependents and other expenses before they get a piece so this may not necessarily be the quickest road for their recovering monies. By the way, most judgements are sought so creditors have more time (some up to 20 years) to collect what is owed them. The worst for you might be to do nothing and wait for a bank freeze or levy to come down the pipes which will tie up all available funds you can use to remedy. Again, seek the proper advice - there are a lot of non-profit credit counseling firms (look for accredited or licensed) that can get a plan started or make the appropriate recommendations for you and put your fears to rest. Knowledge is power, therefore use it and step up and deal with this as if your life depends on it. Running away is basically a win for your creditors.

Respectfully,
Christine Janklow