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Richard - Bizlaw
Richard - Bizlaw, Attorney
Category: Business Law
Satisfied Customers: 10629
Experience:  30 years of corporate, litigation and international law
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Hello, My brother and myself own a small "finance" business

Customer Question

Hello, My brother and myself own a small "finance" business in Georgia. We provide consumer loans against "clear" car titles for up to 24 months so the company becomes the 1st leinholder on these titles. Business has been down the past 12 months.
Here is my dilemma:
The business has a line of credit with a local bank with an outstanding balance of $500k.
This loan is guaranteed "personally" my myself and my brother and the loan was secured at the time it originated 12 years ago by stock we owned "in the same bank". At the time the loan originated, the stock we put up for collaterial was worth $500k so the loan was secured "dollar for dollar". The loan was setup with an APR of "prime" plus zero.
The loan was also setup requiring "interest only" payments each month and that is all that has been paid for these 12 years. The bank is still holding the stock as collaterial, however, the value of the stock has dropped drastically. (lost about 75% of its value).
The loan is renewable every 12 months and we have renewed it every year showing "interest only" required payments which required a "new" loan document to be signed by myself and my brother each time which we did personally securing the loan.
At the time this loan was being "renewed" each year, my brother and myself had to provide a personal financial statement to the bank each year. During these years, both my brother and myself "each" had a net worth of around $700k to show on these financial statements which included nice homes for both of us with some equity in them. Well, times have changed for both my brother and myself. We no longer own homes (we are renting now) as we sold our homes and made some bad investments with our money and it had sadly dwindled down to almost nothing. My brother stepped down from the business about 3 years ago and now has nothing to do with the business so I am running it myself now. About 2 years ago, the loan came up for its annual renewal and the bank asked my brother and myself to not only personally guarantee the loan but they now wanted the "principle" reduced. With business showing signs of decline, we was not in the financial position to reduce any of the "principle" plus my brother refused to "personally" sign the loan agreement anymore so NO new loan document was ever generated. The bank continued to send us monthly "interest only" statements and we continued to pay them. I "assume" the last loan document that we both signed about 3 or 4 years ago is still a valid document since no new document has been generated and signed by us.
Lately, due to the decline of business which resulted in less income for the business, we have fallen 3 months behind making these monthly payments to the bank. The bank has stopped sending us monthly statements and has made no communication with us in 2 months which has us very concerned. We have been reluctant to call them. Is it possible that the bank is preparing to demand the entire loan due and payable immediately which we would both be forced into bankruptcy ?? If that happens to be the case, how would my brother and myself try to protect what little assets we have ?? I am 55 years old and what little assets I have (maybe $100k) I need for my retirement in a few years which will not carry me very long. When business started to decline, I cut my pay 50% to try and help the company out financially and, unfortunately, starting using my retirement funds to make up the difference in my pay cut so the money that "was" put away for my retirement has vanished so I need to protect what little money I have left. Suggestions?
Submitted: 6 years ago.
Category: Business Law
Expert:  Richard - Bizlaw replied 6 years ago.
Are your retirement funds in an IRA or 401K plan?
Customer: replied 6 years ago.
My retirement funds are not in either but instead invested in my business in the form of AR's. I could cash them out if needed but only if I must in order to protect them.
Expert:  Richard - Bizlaw replied 6 years ago.

The accounts receivable in the business are not protected and will be available to creditors of the business. If they are held as personal assets they will not be protected in a bankruptcy. I do not know that there are good solutions. You might try creating a pension plan but that would have to cover all employees and that may not be feasible. You might try distributing the A/R to yourself in varying amounts and contributing those assets to an IRA. I suggest you speak to an ERISA experts to see if this is feasible and then decide if it can be done practically.


This communication is not intended as legal advice. A local attorney should always be consulted for legal advice. No client/attorney relationship is intended or created by this communication.

Customer: replied 6 years ago.

The "only" employees of the company are myself and (2) of my sons. No one else. Give me more info on the possibility of a pension plan that "might" protect the assets that are currently in the form of AR's. Thanks

Expert:  Richard - Bizlaw replied 6 years ago.

You would have to create a pension plan that you would fund with A/R instead of cash. So you could make up to 25% of you compensation in contributions to the plan but you would have to do so for all employees. You will need to work with an ERISA specialist to make sure the structure was correct. The problems are that once you transfer the A/R the business loses the cashflow from those assets which may not be workable. Also, all employees have to participate in the plan and not just you.


This communication is not intended as legal advice. A local attorney should always be consulted for legal advice. No client/attorney relationship is intended or created by this communication.

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