My father came to visit yesterday and we had a free meeting with a bankruptcy attorney earlier this morning.
Needless to say, it was an enlightening and interesting meeting.
I went into the meeting very, very anti filing a bankruptcy. I’ve come out of the meeting very, very unsure of what I should do.
My Questions about Bankruptcy
We went into the meeting with a one page overview of my situation and two other one page spreadsheets. I was well prepared. I had a list of specific questions I wanted to get answered and for the most part all of them got cleared up.
Some of the question I went in with:
- Personal & Business debt totally intermixed – a mess!
- Personal vs. Business bankruptcy? Is it one or two filings?
- Business revenue being applied to personal debt, generating more tax liability.
- WAMU & Wells will not negotiate a payment plan on Business Loans. WAMU has demanded payment in full on ~$30k
- Who can seize or take control of a Business Checking Acct. and how can that be prevented?
- Wells Business Checking Acct. risk?
- IRS back taxes, & current year taxes
- WAMU?
- Is any form of bankruptcy an option?
- Cost?
- How you get paid?
- Taxes on write-offs?
Chapter 13 vs Chapter 7 Bankruptcy
Due to my level of income, my situation would definitely be a chapter 13 filing. A trustee would set up a re-payment plan for up to five years based on my disposable income (in theory, my business is supposed to be paying me 40K a year).
Business vs. Personal Debts
Because all my business debts are personally guaranteed by myself, they can all fall under the personal bankruptcy. As least this is what we got from the attorney.
Taxes and Students Loans
Taxes and student loans cannot be forgiven or reduced in any manner, but it sounds like they could be rolled into be being handled by the trustee as well.
Pros of Filing (as I see them)
- Monthly payment would be my disposable income on 40K, so probably no more than $1.5K a month at most for everything. This is vs. the over 3K a month I have no with all the debts
- In 5 years everything would be gone (this does not include the money I owe my mother, since technically it is not a debt)
- Would allow me to separate business vs. personal expenses and start with a clean organized slate on the business side of things
- All debts go to 0% interest
- No more calls, disruption of business time, ect
- Other pros here I’m sure
Cons
- Stays on credit report for 7-10 years. My credit is already shot….but still.
- I would have to check those boxes on applications that ask if you’ve ever filed a bankruptcy (yes, this seems trivial…but its not to me)
- Other cons here that will come to me later…
Bottom Line
The bottom line is that I really need to think about this. I’ve got some big projects at work coming out in the next 3 months that could significantly change my revenue at the business.
I’ll be honest…the more I think about it, the better idea it sounds. I really need capital right now in my business to expand things…but all profits right now are going to debt payments.
I’m so confused.
Time to get back to work. At least I can do that well…
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Could I give you a tiny bit of advice? I hope your saying sure or nodding your head yes
.
If this is the path you choose, pick one credit card (if you don’t have one) and pay it off full. Do NOT include it in your bk filing. Legally if paid in full, you don’t have to. It is going to be hard to obtain credit. This lonely card will help you – if you are wise from there out.
Remember, this does come with a humiliation thing. You will encounter that question of bk many, many times. You will survive and learn.
I thought that credit card companies loved to send people in BK apps because they can’t get out of paying it? Granted, it would be high interest. But, I think you’re right, D. Pay off one card and then shred everything else that comes in…
DK, I’m thinking about helping you out with your Prosper loan. I’ve got a chunk of cash coming in this week and while I can’t put much into it (have server fees coming up), I’ve been wanting to try a Prosper investment and I’d like to help you out.
Also, if you want, you can send me an email at this address and maybe we can chat a bit and I can give you an endorsement.
well, liek you said, It seems a lot less scary than it sounds… just goes to show you your dad is a wise man.
I’d say go for it
OOPs forgot. That one card you pick…make it one that you have NO OTHER dealings with that company. For if you go bankrupt on one card, you loose all.
I forgot to mention the humiliation part as a con. This is a big one for me. Fault me for it, but I do have some pride issues. It’s something I’m working on.
How public is a bankruptcy filing?
Shocking. You went to a bankruptcy attorney and you left semi-willing to file bankruptcy after endless blog entries about how you wouldn’t do so.
I still don’t get filing a 13 since you are going to end up paying off all of your debts anyway. Why not just get more aggressive and repetitive negotiating with your lenders so that you can pay them off yourself.
Also, you should be placing all income possible toward debts. You do not need “capital” right now. Hint: your past shows a tendency to look for quick paths to wealth and to be way too risky with money. So, try the more conservative approach. Grow your business slowly and without debt while using all other funds to pay off debt and reduce risk in your life. Better yet, maybe you should get a normal, well-paying job if your “business” is earning you less than $40,000 per year. Or got get two regular jobs, work 80 hours a week (what else do you have to do?), earn a lot more than $40,000 per year, and pay off your debts.
Been reading your blog for a while, but this is my first comment. I really admire that you are being honest with yourself about the mistakes you’ve made, and working hard to fix it. It seems to me (not that I have any personal experience with it) that filing for bankruptcy is a very good option for you. The thing that really swings me is that it will get you that much closer to being able to pay back your mother. From other entries you’ve written, it seems to me that that is very, very important to you (with good reason).
Filing for bankruptcy, in this case, seems not like a cop out; rather, it seems like the courageous thing to do. You set your pride aside and do what you gotta do to take care of your situation and take care of the people around you who matter.
I have lots more thoughts on this…
If I could reduce the payments right now going out the door by filing a BK, that would be a good thing. Not only for my mother (I owe it to her to do whatever is in her best interest, putting my pride and humilation aside, it should not matter after what I did to her), but also for the business…
Lots of thinking to do. And Yes, I realize I was very adamant about not filing a BK and now I’m open to it. I’m OK with that. Sometimes you think you know what is the best option, then you get more information, and your opinion changes. I’m not going to make any rush decisions here…
I am 4 years into a chapter 13 myself. My husband and I didn’t want to do it either, but you sometimes get into situations where there’s no other solution.
“dm” is correct, we get at least one credit card offer in the mail daily. And yes, the information is public. We get plenty of other junk mail – “Let us help you refi and pay off your chapter 13!”. When the housing market was still booming we’d get that letter sometimes from 5 different lenders in a day!
Here’s a “pro” for you: After the first few months of the bankruptcy, when the court dates were over and we got into repayment mode, our stress level went to nothing. Seeing how we were now on track to get a lot of our problems solved.
And another: The forced restrainment on your spending, with the trustee taking all your disposable income for five years, really teaches you to live within your means. We are learning how to live on a small amount of our income. When this chapter 13 is over, we are talking about taking 2/3rds of the amount the trustee is deducting from our checking account each month, and sticking it into a savings account somewhere. It’s actually a good chunk of money, and I don’t think other couples with our income would have the discipline to do it.
There’s more I’d like to tell you, but unlike you I am not so comfortable talking about my finances publicly. You can email me, you should be able to see it attached to this comment on your end of the blog software.
This is for Denise, I have a few questions for you. Can you email me?
One thing a BK will do is get you on a budget in order to properly manage paying off these debts. From what I can tell, half your ‘debt’ is owed to your mother, so a BK won’t do anything there. The other half are these other loans you have taken out. BK doesn’t stop student loan payments or the IRS, so almost remove that from the list of debts BK won’t do anything for as well. What do you end up being left with?
Granted your credit is shot anyways and you’re having trouble paying everyone mostly because your debt is well beyond your income. You’re at the point where you have to keep doing your business and trying to make it on your own because a W2 job would be hard to get if they run your credit before they hire. If your creditors tried to sue you to collect on the balances you owe them for non-payment, why would they sue a broke person?
You’re not poor because poor people lack something you clearly don’t, work ethic. I think you’re just broke, frustrated, and this BK is starting to look like a good option for you to make things easier. You clearly need a budget and get things back on track. That is the more difficult part is to actually slow down and get it figured out. Only you can do what is best for you though.
Some random thoughts….
…going BK would mean you lose the ability to negotiate a settlement with a creditor. How many of your creditors are known to negotiate decent settlement offers, pay for deletions, etc.
…can mom wait five years for her money? I am not a BK attorney but I don’t see how a trustee can justify approving her as either a legitimate living expense for you or a legitimate creditor to be paid thru him/her.
…I’m not clear on the legal form of your biz, partnership, llc, sole proprietor, etc. But reading your entry it sounds like you plan to plow profits back into your biz for growth. If you don’t file BK, what is to prevent a creditor going the judgment route and getting a till tap order? I’m thinking of your WAMU debts here. Do you live in a state where this is not allowed, or does the legal form of the biz keep the funds out of the reach of the court?
…are the payments to mom for a year pre-bk filing considered preferential payments which might be recoverable by a trustee?
Thanks everyone for the comments, ms. scrooge, Jim, Denise, D, Dm, Zintradi!
I’m making another list of questions to send to the attorney. I don’t want to rush anything, yet at the same time, financially the sooner I make a decision the better.
Your particular situation will also probably need a CPA involved since your business monies are so comingled with your personal money and you owe the IRS. Please pay your payroll taxes (940&941) (Google TFRP)or the stink will follow you until you do; then catch up on your personal taxes. You will need help with this; I think your attorney will have to hire a CPA for you. Good Luck; keep your faith.
DK,
I would do everything in my power to avoid BK. Once you do that step you lose control.
I know the stress you must be feeling and I have felt it myself for months on end. My key has been to keep negotiating and keep talking to everyone I owe. I have given details of my budget every month to every person I owe for the last 18 months before the month begins. It took 11 months before everyone finally agreed on payment plans; but it was worth it. The stress that was with me for months has subsided, and I am very proud I am fighting out of my hole without BK.
I haven’t been able to follow your details as closely as I would like because of how busy I am; but if you ever need any advice I will gladly help any way I can!
I have been contemplating for this for awhile but the problem is going through an attorney that I can’t pay. I was in the Navy for 15 years and had a lot of debt prior to getting discharged suddenly. I didn’t receive my “severance pay” for over 6 months. So to live I had to use my meager savings and then started charging on my credit card. I now have nothing to my name, no property nothing and have been unemployed for over 2 years. It gets more complicated from there but I owe quite a bit of money to 2 institutions and I do not know what to do. I have used all my Unemployment benefits that I received to pay these debts off but that lasted 6 months and now I am going insane with calls and letters. I don’t want to talk to them anymore, it’s the same as talking to a wall and they never give up. I just wish they would go away until I was employed and could pay them again.
TJ,
Good luck!
Hi! First off I would like to say thank you for serving our country for those 15 years! Secondly, did you realize that you can actually file bk yourself? You technically don’t need an attorney for this! However, you do need the money for court costs! I filed chapter 7 for my husband about 2 and a half years ago and it cost us about $200. Since then we have been able to refinance the house at a great rate! Just make sure you get current copies of all 3 of your main credit bureaus! If you have any questions, feel free to contact me! I’m working on a bk for my brother right now too! Lastly, I am so sorry to hear you had quite the run of financial despairs….it will get better!
Can a person get fired for filling Chapter 13? When that person works for a bank and has to put the credit cards from its employer in the BK?
Hi!
My husband and I have just meet with a reputable BK attorney. My goal was only to get out of my unsecured debt I have contacted my crediters by both phone and mail asking them to help me with reducing my interest rates so I can pay them off in a reasonable time…such as 5 years. I have never had a late payment, all bills are current and I make more than the minimum payment. The answer was no because my debt to income ratio is too high….thats why I need the help!! Now this attorney says we should do a chap 13..which I am fine with..but she wants to get us out of our secured debt as well (2 Home Equity lines). The new laws about our house value being too low from the mortgage amount. I just dont know what that will do to our future credit rating? Anyone know?