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William B. Esq.
William B. Esq., Attorney
Category: Business Law
Satisfied Customers: 3682
Experience:  I am a civil litigation attorney with experience representing and advising HOAs, businesses, and individuals.
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Hello We have a growing beauty product business. revenue is

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Hello We have a growing beauty product business. revenue is growing each each year and are now searching and found some small seed/ VC for Investors. They have been recommened to me that Im following up with. The issues and questions I have, from 09-13 weve still been having to catch up from old debts and bills.. around $350,000 we are slowly paying off. Biz made $450,000 12 year and this year probably $550,000+ The debt is seriously killing me.. I am good at negotiating and theres been about 4 lawsuits. two I paid off.. I am honest and show them what we make.. Biz need $20,000 to stay on top of bills a month but revenues go up to $45,000 one month then down to $7,000 another on top of that we have products to produce so really challenging. We do have a factor I worked with for six years and they will now front any production funds when big orders come in.. theyeve done this for one client alreadt, but we need working capital to be able to breathe.The two ligitating companies now want judgements. Could happen early sept. One is for $150,000 a personal loan from personal person. another an agency $31,000. Both are hitting right as were looking for investors and we have FOUR national stores looking at us.. really messed up timing, as weve worked ten years to attract stores like this and Investors. What to do? Should I do a chap 11? Or what? any Investor that sees we have a judgement wont want to Invest. Are they afraid of BK also? Debt is OK I assume but not a judgement. What about Bankrupsy.. One of those lawsuits the agressive one I was making pmts and as summer really slowed retail wise I told him Id need a break till it picked up which I did til this monh and paid a $2,000 pmt. If any of these people move to take Inventory then what? I was thinking/asking you could I open a clean no debt buisness simialr name and take the other company BK? Then have BK court make arrangements to push out the debts so we can afford them? How much could it cost? Just need to know right thing to do as looks like our company is taking off and burdened with these debts which I know I have to pay.. but each month I take so little from company to pay them and running costs.. We have done an amazing job on biz and are grwoing but we need a break from them hindering the biz. What options do I have as they are getting agressive now trying to get Judgements and I assume taking Inventory. The thing is we dont asemble goods til orders come in Ive told them this so they wont get many $ for that.. Thanks.. LB
Submitted: 1 year ago.
Category: Business Law
Expert:  William B. Esq. replied 1 year ago.

William B. Esq. :

Dear Customer, thank you for choosing Just Answer. My name isXXXXX would like to assist you today.

Customer:

hi Bill thank you.

William B. Esq. :

As an initial matter, if you are considering a Chapter 11 reorganization, I would suggest that you speak with a bankruptcy attorney as quickly as possible. Chapter 11 is a "reorganization" chapter, but it really only works if the debtor has already done the work before hand to ensure that a viable Chapt. 11 plan is in place and ready to be confirmed by the Court once it is in place (the creditors, or almost all of them, must agree to the terms).

William B. Esq. :

If you have current litigation against you, but a judgment has not yet been entered, but you have viable defenses such as usury, you may be able to appear in court and make a motion to "vacate the entry of default" against you. You may do this up until 6 months after the entry of a default judgment, but the earlier the better your chances of succeeding on the motion.

Customer:

Can a court hearing actually be cancelled from the people looking to get a judgement? I asked if they would but then another one is mocing for that also in October. How much does chp 11 cost.. seeing if all creditors do agree.

Customer:

When I go to court..for judgement.. we already had councilling one day so we agreed to an amount to be paid.. my lawyer at time said it would take a court case to go over and prove usuary

Customer:

Would Investors even be interested in us if we were in chapt 11?

William B. Esq. :

It is possible to ask the court to "continue the hearing" on a hearing for entry of default judgment if there is a requirement for an evidentiary hearing by the Court, but it is unusual for one to be continued for a lengthy period of time. I do not know exactly what is going on in your specific court cases, but most plaintiffs move quickly to get a judgment acter default is entered because you risk losing your "priority" against other creditors since the date is calculated from the day judgment was entered.

Customer:

What is average cost of Chapt 11.. what if judgement people dont agree? If any stores knew theyd drop us like a hot potatoe it would ruin ten years of building this biz.

William B. Esq. :

If you have a lawyer that is advising you on the specific hearing, I will defer to their knowledge of the exact circumstances, and why the defense of usury did not apply in your circumstances (although this is usually a common defense).

Customer:

I dont have one at the moment was too expensive..

Customer:

I assume I must get one for this hearing.. can a court appint me one how does one go about doing that?

William B. Esq. :

A Chapt. 11 case can become very expensive very quickly. The duties and obligations that will be placed on you as the "debtor in possession" and the requirements for your attorney in the court proceeding will cause costs and expenses to increase. A contested Chapt. 11 is not often successful, particularly when the primary creditors is not willing to negotiate (usually in the form of taking an interest in the company in lieu of payment).

William B. Esq. :

You do not absolutely have to have an attorney. However, given the amount of money in question, it might be worth at least paying for an hour or two of an attorney's time to discuss the case and see if it is worth fighting it at this point. As far as contesting the evidentiary hearing, you can still attempt to argue the interest etc. (I don't know if the Court will accept argument, but the going legal rate in CA is 10%, so anything above that can raise an issue - unfortunately usury is riddled with exceptions).

William B. Esq. :

The Court does not appoint attorneys for civil litigation matters so you must either appear "pro per" (without one), or hire a new attorney for the hearing.

William B. Esq. :

Just to ensure I understand the procedural posture correctly, this is an "evidentiary hearing" to enter judgment against you?

Customer:

So if any debtors said no they contest the BK court dont like that.. What sort of costs are we looking at? TWO people mainly.. the rest are small $5,000 approx each around 10 of them so all in all we have $350,000 in debt. The rate was def usuary. 10% year plus many fees a week.. They could not even provide me with the correct amonts I had proof of paying.. so we negotiated and they came up with a number.. literrally like that.

William B. Esq. :

Unfortunately, I cannot price out a Chapter 11 case for you via this service, the amounts vary too greatly. (You are far better off contacting a bankruptcy attorney who can give you an estimated amount for their specific services, and an idea of how the matter will play out in the specific court you are appearing in - Federal Bankruptcy practice is tricky, and some judges are much more solutions oriented than others).

Customer:

Heres what he said" I am going into court to get an ex parte order setting a date for our motion to enter judgment against Lucy B Cosmetics, you and its officers and directors for the remaining balance on your settlement amount, tomorrow." No weeks warning.. just like that..

William B. Esq. :

The hearing tomorrow (the "ex parte") is simply to ask the court to put their motion on calendar. This means that tomorrow they will go into court, appear before the judge, and ask that the motion for entry of judgment be given a hearing date.

Customer:

yes they did that I have paper to show hearing is for sept 4th.. as I asked that he stop as were back making payments again can he stop the hearing? cancel it.. Im hoping he will. But what prooof can he show me they are and how quickly if they decide he will stop hearing will I really get a notice?

Customer:

I recall on papers( sorry dont have them in front of me) saying I can answer this lawyer by aug 22nd. I already emailed him to ask as were getting on our feet to stop should I fedex same request.. can I send to court request to stop this judgement?

William B. Esq. :

As a practical matter, I do not know how long the Court will tolerate the default sitting with the Court without having a judgment entered. But as long as the Court is willing to allow the case to sit with the default on file, you can expect to receive a notice that the hearing is off calendar from their attorney. You can also check this on the Court website's "Register of Actions"

Customer:

I see.. so he can have comfort to attack if we dont pay on time..If he says moves forward and does get s ajugement and calls our stores to collect money.. it really would ruin our biz. is there any way to plead to judge or them re not forcing us out of biz?

William B. Esq. :

No, unfortunately once they have a judgment against your business, they have the right to collect. This makes it very difficult to do business, and it does give them a significant amount of leverage over you.

Customer:

Also we only really charge cc so not much owed on 30 days to us anyway.. he would probably get 1/10th of the funds.. however they made me sign also a personal guarantee but I dont own a home or anything my biz is what I have thats it.. weve built a brand thats getting noticed so Im feeling I should do BK.. is chpt 11 the only one that could work for us to continue being in boz?

William B. Esq. :

Chapt. 11 would reorganize your business, it would take away most of the control you currently have over your organization as the trade off for being left in possession of your company, is that the creditors have oversight over the use of the assets etc. I would strongly suggest speaking with a good bankruptcy attorney (Make sure they have done several Chapt. 11 bankruptcies this year, and ask the outcome, some attorneys only do filings). This is a complex area of law and you can get buried very quickly. You want to know what you are getting into before you take that step.

Customer:

Can I now start a new biz that is similar legally? the design of goods same with a differnt name for instance? Maybe I dont "own" that new biz? and just liquidate (file the BK that just closes that biz and the judgments get whats there to sell off?)

William B. Esq. :

What is your current business organized as?

Customer:

What does that mean oversight of use of our products? what we sell them or we dont.. can they have say of who we sell to?

Customer:

C corp

William B. Esq. :

Yes, they have a say over how the business is organized. They cannot dictate day to day motions of your business, but they can have a significant impact in a business such as yours looking for start up money.

Customer:

Can I be part of a new business now? with similar products for instance?

William B. Esq. :

A c-corp can go through a Chapt. 11 reorganization, or simply a Chapt. 7 "liquidation" bankruptcy (liquidation means all assets are sold, the creditors are discharged as to the corporation, and the debtor is left to start new. A c-corp can similarly dissolve through a "wind down" in which all assets are sold, and the creditors are paid off from the full assets of the corporation (nothing left), and the corporation ceases to exist.

William B. Esq. :

If you are personally liable for the debts, the creditors can still turn to you for repayment of the full amount.

Customer:

I dont have anything but the biz thats it.. no house we placed everything in our biz unfortuantly! as weve worked so hard and created a great brand..

William B. Esq. :

If you were to start or join in a competing business, there would not be any prohibition against that. You could file a personal bankruptcy to discharge the debt as to you and start your own business up as well. The only downside that I can see is that if you have incoming orders, these may be considered assets for the corporation, and part of the bankruptcy.

Customer:

OK so say I started a new biz now with some of my same clients.. different name of biz same kind of products. Those clients will know I assume that old biz closed.? or if they dont owe us any $$ then does the BK lawyer (lets say cp7) allow the creditors to call our old clients? even if our A/R says they dont owe us anything? im thinking ruining our reputation.. if i start now with new biz and cp 7 the one and let then take the inventory do what they will with it all then what if they dont get enough to pay off the debt i owe?

Customer:

i guess if they dont agree with amount they'll receive though bk crt id also have to do bk7 yes? as one can come after me personally.. can i be a part of a biz if ive claimed cp7? be an officer etc?

Customer:

lets say I do have to do cpt7 if cpr11 is too risky/ expensive do you think an investor would be happy to invest knowing this? i guess its comfort theres no debts!

William B. Esq. :

Bankruptcy is designed to "offer a fresh start for the honest, but unfortunate, debtor". You can keep membership of boards, open new businesses, and conduct other business after a bankruptcy. You simply must ensure that when you file (or an entity files) it provides all of the information required by the petitions (the statutes), and then expect that all "non-exempt" assets will be taken in order to pay off the creditors, but the creditors can no longer collect for their debts.

Customer:

ideally if they are going for judgement id want to start something now so that we can seamlessly introduce the new stuff and keep cash flowing.

Customer:

can the large judgement $150 one come after the new business?

William B. Esq. :

I cannot make the guess as to which one an investor will find more structurally viable. Filing a bankruptcy at the initial stages of a start up makes for a difficult situation, but the benefit from starting with a clean slate after a Chapt. 7 where all debts are paid in full, the old business is done, and you are simply hoping that the investors will be interested in a similar one, may be better. But this is the type of information you really do need someone more familiar with your industry and able to sit down with you to discuss the actual "nuts and bolts" of any bankruptcy action.

Customer:

also the people like friends & family who invested can i give them shares of newco?

William B. Esq. :

You may, but be careful with this, you do not want to appear as "ratifying" debts that were previously discharged. There is a procedure to do this, but you do need to do it properly.

Customer:

they are family that placed in funds to our buisness years ago..not debts..I am seeing that the two judgemnts coming up are really detrimantal to me working and making money

Customer:

would you suggest seeing if we can afford cpt11 then move 7 if becomes exoensive.. can i at same time be creating another buisness? is that

Customer:

kosher as they say?

Customer:

who can advise on setting up new biz?

Customer:

also i recall the judgemnt people saying if i set something else up he'd come after me can they?

William B. Esq. :

I would recommend speaking with a good bankruptcy attorney. Even if the business does not end up filing (you just wind it down), you will want to look into a personal bankruptcy just so you can operate a new business individually, if that is your plan). A bankruptcy attorney will be your best resource here.

Customer:

i seriuosly have worked so hard for so long but if these people cant give me a break i feel its our only way out to make a new biz. can they come after me though in new biz he threatened in a meeting he would?

William B. Esq. :

If you wind down or put the corporation through a bankruptcy, go through bankruptcy yourself (as the personal guarantor), there would not be any claim left they could use to go after you following the bankruptcy(ies). This will not be cheap to get the bankruptcies (or bankruptcy plus "wind down") complete, but it will cancel out the debt. Usually a Chapt. 7 for an individual can be completed within 3-6 months, and you can begin a new business immediately (you can even do so immediately after you file the petition, but are awaiting the discharge).

Customer:

i need ballpark figures here to BK both and wind down..

Customer:

I heard cp 11 can be 20-50,000.. but 7 is much cheaper?

Customer:

Ho could he say that threaten me to say if I started anything else he would come after me.. he was lying then I assume?

William B. Esq. :

I can't give you a specific figure. A personal bankruptcy for you would be less than $5,000 for an attorney plus the approximate $250 filing fee. A Chapt. 7 for the corporation will likely be more expensive, but if your assets are small and your creditors are as well (and both are well documented for the attorney to simply plug into a petition), it may be relatively straightforward.

Customer:

So probably $10,000-$20,000 tops for both I assume.. def will get a meeting with BK lawyer soon.OK so going back to if on sept 4th he gets approved judgment.. how fast can they move to get inventory etc? what if he tried selling my biz? what if he gets $450,000 for the biz? pays himself off then other debts paid theres $150,000 left after all debts paid. Do I get that? what if new owner say of my biz doesnt like I started a new one?

William B. Esq. :

They have to get a judgment, then wait 30 days to get a writ of execution to get property to sell at auction. If the auction were to bring in more than the amount owed, you (or the corporation) would receive the excess.

Customer:

If they sell my Logo, brand as a company as they could, and believe me what we created poeple would want to buy this brand..We created a particular style of products and thats my signature look. But I guess with a diff name its OK. Should I look to sell the brand now maybe.. (I know someone who has brokers that do that) keep it clean no BK and cut my losses.. try to sell for $600,000+ maybe see if theyd want me along to help? then pay all debts and start a new? so many decisions.. so many years working on this its really challenging..

Customer:

does anyone get a judgement and NOT move on it say if payments were on time? Thats too scary to live under that pressure though.. Just curious..

William B. Esq. :

Yes, it happens. But usually only because they believe that the debtor is insolvent (or "judgment proof") and it is not worth their time and expense in going after the judgment ("throwing good money after bad"). But the bad news for the debtor is that as long as the judgment is unpaid, it gains interest at 10% every year without the judgment creditor having to do anything other than keep the judgment current (it must be renewed every 10 years).

Customer:

I Think I will look at both.. selling now and also BK if The judgemnet happens then I can at least know Ive tried every angle.. The Potential Investor I of course will tell them what weve decided to do.. they may come on board and get all debts paid anyway who knows.. its a unique brand and only downside is no backing.. we nabeed us army as a client and now three national stores are looking at us.. what unbelievable timing!

William B. Esq. :

I do wish you the very best of luck with this. Timing does seem to be extraordinary though.

Customer:

Thanks Ill make sure to look for a great BK lawyer and discuss.. So again if judgement is happening for sure then for cp11 I should start working on that now with someone yes? but need less time for cp 7?

William B. Esq. :

I would let local counsel help you decide which chapter works best for you, and particularly what will be best fitting to meet your business plans in the future. The earlier you speak with an attorney though, the more time you have to plan a bankruptcy, and good bankruptcy planning will significantly increase your benefit from the petition.

Customer:

Also to wind down instead of BK can that satisfy the judgments? is that protecting me from them coming after me (I understand Id have to be BK ) but I can wind down biz sell assets give them as much as we sell off and not actually go BK and that action satiisfies the debts yes?

William B. Esq. :

You can wind down your corporation and accomplish the same goals as a bankruptcy for those purposes, but it requires use of a civil court (as I have a feeling from your post these creditors will contest the valuation of your business etc. in the wind down - remember you are also a creditor of the corporation as an employee), and while civil courts are capable of dissolving a corporation, this is the primary purpose of a bankruptcy court, and the code can usually move things more quickly and efficiently. But again, ask your local attorney what would be best as this is a very fact specific and tactical issue.

William B. Esq. :

(And a wind down of the corporation would do nothing to protect you from your personal guarantee on the debts).

Customer:

Thank you I feel empowered to ask all the right questions and make what decisions we need to make..so going to a BK attorney do they ever NOT suggest going BK? as thats their biz. The first Investor that was interested in our biz I would like to let her know and get a read on if shes into helpung the biz at this stage who knows..

William B. Esq. :

Bankruptcy or insolvency attorneys are there to help debtors they should be able to give you an array of options, if they do not, you can go to another one.

Customer:

Thank you William I appreciate all the help.. I will go forth and see whats meant to transpire here. Giving it 100% every day.. Cheers LB

William B. Esq., Attorney
Category: Business Law
Satisfied Customers: 3682
Experience: I am a civil litigation attorney with experience representing and advising HOAs, businesses, and individuals.
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William B. Esq.
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I am a civil litigation attorney with experience representing and advising HOAs, businesses, and individuals.