Hi, I'd like to help you with your bankruptcy questions this morning.
OK, What other information would you like?
Are you intending to file a Chapter 7 or Chapter 13?
Well, I have already filed chapter 7. It has been granted, but I am hearing it may have been filed fraudulently because I didnt include any of the corporations income or assets
Also, do you intend to keep your C corp in business, or will it be wound up?
I am planning to change over to an S corp
You can always amend your schedules to include the income and assets of the C corp. I wouldn't worry about fraud so long as you timely amend your schedules.
What do you mean by timely amend my schedules?
Let me back up a little bit... do you have an attorney for your bankruptcy, or are you filing pro se (by yourself)?
I have an attorney, but it was just for the bankruptcy. The reason I am worried about this is because I took out a $1.45 million dollar loan to buy another business, and I filed bankruptcy after I made the second payment. The people I got the loan from (the business owners) are fighting me saying it was fraud. Now they are saying that the way I use the corporations money as my own, I commited fraud when I filed.
What was the date you took out the $1.45 million dollar loan, and what was the date you filed your Chapter 7? Approximations are okay.
I got the loan February 1st 2011 and filed May 25 2011. I made the 1st and second payment on time, then stopped paying.
May I ask what happened to the money in that time period?
the loan was for the business and it was owner financed to me. cost was $1.45 million. I dont know if this makes a difference, but I am still operating the business as well as my other business.
The problem here is that your creditors wouldn't even have to prove fraud to recover the $1.45 million from you in the bankruptcy - it's going to be considered a preferential transfer subject to recovery regardless of your intent, as you received the money within 180 days of filing.
Has an adversary case been filed against you in the bankruptcy?
So because I got the loan less than 180 days from filing bankruptcy, I am still going to have to pay them?
And yes, an adversary complaint has been filed, but I am going to fight it and claim they decieved me.
How were you deceived?
It isnt doing the business I thought it was going to do.
The problem is still the preferential transfer issue... even if you were misled, it's still within 180 days.
Does that mean I am still going to have to pay them? I dont understand.
Yes, you will probably have to pay them unfortunately.
even if I can win the adversary complaint?
Honestly, I don't think you'll win the adversary
Do you have any of the $1.45 million remaining in cash or liquid assets? Maybe you could try to offer a settlement.
I have all of the equipment that came with the business. Is there anything I can do to get this debt discharged?
It is a service business and it was mostly propriatary technichs and trade secrets
You could possibly get the debt discharged, but your creditors would take the equipment and shut down the business.
Or I should say effectively shut down the business
How could I go about doing that? They can have the equipment. I can get some more and start it over.
I'm assuming any creditor lending you $1.45 million has a UCC lien on ALL of your business assets, it would be malpractice not to do so
How much of the $1.45 million could you repay?
Yes there is a UCC on the equipment. I dont want to repay any of it.
But how much of the $1.45 million is traceable (i.e. in any bank account connected to you or the business), in equipment, in cash, etc.?
I'm concerned that they're going to take the equipment AND obtain a significant (over $1 million) non-dischargeable judgment against the business and you personally
I make almost a million dollars a year from my other business. Will they make me pay it out of that company? And I have a lot of other assets. With my other business there is a lot of office equiptment, cars equity in real estate. I do have cash in my other business, but I comingle all of it
The commingling is a real problem
Thats what I have been told. Is there any way I can get out of this?
Unless you can demonstrate that the profitable other business is run completely separately (i.e. nothing is commingled with your other business or personal funds), you will probably not win.
And then there's still the preferential transfer issue and alleged fraud to deal with.
I cant do that. I dont even have a personal checking account. All of the money that comes in goes into my corporations checking account
That's not good.
You may have legal defenses, but they're going to be very specific (likely based on state law) and will require extensive litigation.
This is all in California.
What do you mean by Specific?
This is the kind of case where you would want to hire a very experience bankruptcy litigation attorney.
How can I go in, say they decieved me, and get this adversary complaint dismissed so I dant have to pay them? What information do I need to have? I dont really have anything but my word.
Can I claim they defrauded me?
I mean that you'd have to argue something like "Seller made fraudulent misrepresentations of fact subject to California's Fair Dealing Law; case law states that the indebtedness should be discharged in bankruptcy when this law is violated." (I made up this defense as an illustration of the type of specificity you would need)
The problem is still that even if they DID defraud you, the judge would basically say, "okay, but you filed within 180 days, just give them the $1.45 million back and we'll call it a day."
What if I said they told me there was a big customer, but after I got the business, the customer was not a customer any more. Or something like that?
Unless it's in writing, it never happened
The problem is still that none of these defenses get around the preference period 180 days issue
I dont have anything that specificly says that, but they told me there was a big customer, and when I bought the company, there wasnt. They keep saying they told me. (And they did give me their books, but I didnt look at them) I was actually their CPA. My second business is a CPA firm
If you want to fight this, I would strongly recommend consulting with a California bankruptcy litigation attorney (look for someone who was a former bankruptcy trustee- these attorneys are usually good).
I really just want to know if it is worth spending all of that money on an attorney. I would hate to spend thousands of dollars and still loose.
I'm concerned that if you continue to defend this yourself, you could open yourself up to criminal charges.
What type of criminal charges?
You probably will lose, but you simply cannot defend this yourself - it's too complex.
Oh... OK Thank you very much. You have been most helpfull
I'm not saying you committed fraud at all, it's just the type of thing that looks REALLY bad to a judge or someone looking at the case from the outside.
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