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My personal debt is about $42,000 in credit cards, $7,000 in

student loans, a personal loan...
My personal debt is about $42,000 in credit cards, $7,000 in student loans, a personal loan of $11,000 (that I loaned to my company), and a mortgage of $166,000. I am current on my mortgage and all of my bills, but only making minimum payments. Future salary from the company is tenuous, as we are finishing up our only job without profit (very much in the red) and there are no retained earnings. We are still going after new work, however, but the bids are competitive.
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7/3/2009
TJ, Esq.
TJ, Esq., Attorney
Category: Bankruptcy Law
Satisfied Customers: 12,554
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Hi. What is your legal question for the lawyers?
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Customer reply replied 8 years ago

Want to know if I should consider filing bankruptcy for 1) my business, 2) personal bankruptcy, or 3) just let the business ride and pursue debt settlement on my personal credit card debt. And if bankruptcy, what chapter and what are the consequences? The business will be $450,000 in the red by next month, and unable to pay some of its bills.

Also, because we will not be able to pay some of the creditors for the busiiness, they will file a bond claim. My personal residence is collateral for the bond. My residence is also security for an outstanding business loan of $75,000, which the company has been unable to pay down and has been making only the interest payment every month.

I see. What kind of business entity is it (e.g. corporation, LLC, sole prop, etc.)?
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Customer reply replied 8 years ago
LLC formed in Arizona. General Contractor. I am 51% owner. My business partner's home is security for the bond and the loan, too, but he has a modular home and mine is in an exclusive neighborhood.

Thanks for the additional information.

Since you have an LLC, that means that you are not personally liable for any of the LLC’s debts unless you personally guaranteed them or there is some sort of fraud. You didn’t mention that you personally guaranteed the debt, but you do mention that your houses are collateral. As you know, your houses can be taken and sold to help pay the unpaid debt. However, your personal liability would not extend beyond the value of the collateral. So, you probably wouldn’t need to file for bankruptcy just because the business fails. Even if you were to file for bankruptcy, it wouldn’t generally save your house from a secured creditor.

You also mention that you have substantial personal debt, so that may be a reason to file for personal bankruptcy. The student loans will not be discharged (there is an exception, but it really only applies in extreme cases, such as if you were completely disabled and could never work again). Your credit cards could be wiped out, so that would probably help quite a bit. A bankruptcy will not usually save a house since mortgages are secured debts (i.e. secured creditors almost always have the right to foreclose). So, you’d probably need to continue paying the mortgage. If you were to file for Chapter 13, then any arrearages could be paid over time, but that’s irrelevant since you haven’t yet missed any mortgage payments. However, if your mortgage is upside down (i.e. you owe more than your house is worth), then that could help eliminate the lien that the business creditors have on your house. I haven’t come across your exact situation, but second mortgage liens can be wiped out when there is no value after taking into account the first mortgage. I suspect this situation will be similar. In other words, the business creditor’s lien will be worthless to the extent that if there were a foreclosure, all the proceeds would go to the mortgage lender. If you’re not upside down, then this, or course, won’t apply.

I can’t really help determine whether your business should file for bankruptcy or not since that depends on factors that I’m unaware of, such as whether you can work out agreements with the creditors, whether you have pending revenues, the value of assets, etc. For example, if GM’s debts merely amounted to $450k, I would advise that filing for bankruptcy is not a good idea. On the other hand, if Mom & Pop’s liquor store, which has an annual revenue of $75k, has debts of $450k, then filing for bankruptcy may be a good idea.

Your situation is complicated enough that it warrants a consultation with a bankruptcy attorney in person. But, you should only see a bankruptcy attorney who is experienced in business bankruptcies since they are usually much more complicated than personal bankruptcies. You can weed out the attorneys by asking if they handled Chapter 11 bankruptcies. Your business is not limited to Chapter 11, but it’s a very common chapter for a business to file under.

Have I satisfactorily addressed your concerns? If not, then please feel free to ask for clarification.

If the information that I provided was helpful, then please remember to click the green accept button so that I will receive credit and compensation for my time. Positive feedback is always appreciated as well. Thank you and good luck!

.

DISCLAIMER: Please be aware that only an attorney licensed in your state is authorized to advise you in legal matters, and that the limitations of this setting may prevent your legal issues from being thoroughly addressed. Accordingly, please understand that (1) by answering your question(s) I am not acting as your attorney, (2) my answer(s) should be construed as general information only, and (3) our discussion is not an adequate substitute for an in-person consultation with an attorney.

 

TJ, Esq.
TJ, Esq., Attorney
Category: Bankruptcy Law
Satisfied Customers: 12,554
Experience: JD, MBA
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