Negotiating and Settling business debts.
My once large, successful and thriving business failed more than a year ago. I already have 3 large judgments from personal guarantees entered against me. ... from a large public corporation property landlord, from a local bank for a commercial building foreclosure deficiency balance, and from a large bank for biz credit line non-payment. I will have one more judgment, most likely, for another commercial building foreclosure deficiency when the bank gets around to selling the building. ( the bank walked away from a potential short sale years ago and it is sitting). These judgment debts could be a million $$$ with interest accumulating. ...without interest...perhaps over $800k. No small amount -:(
I do have some equity in my home and do not want to lose my home through forced sale...the equity also prevents me from going bankrupt. And as I continue to pay my home mortgage, the equity grows. I still have 3 mortgages on my home. One of the above creditor judgments also hold my 2nd mortgage, due to mature in 3 years. The 1st mortgage on my home will mature in 7 years. I am getting old; I want to protect what I have left ( my house, a 13 year old car, my bank account). I have been able to achieve new income and continue to pay my home mortgage. Never missed a payment on my house or a credit card.
Can I unwind this and bounce back from all the business debts?
—Linda
Are all of the judgments in place against you personally, or are some of them against a now defunct business? Do you structure your affairs then and now through an LLC? The answer to these questions would impact my general feedback that follows:
With an estimated 7 figure in judgment debt, and 15ok available to negotiate settlements, you would need to achieve 15% agreements with all parties. That, in my experience, is not probable. Possible? Yes. It would depend on many things. The ability to document hardships that do not appear to exist for you are why I say not probable.
You are earning again. What amount of money can you set aside from earnings to deal with the debts?
From the way I read the background you gave, you appear to have spoken with a bankruptcy attorney. Is that correct? If you have not, I would encourage you to speak with a couple of them. Not just any bankruptcy attorney either. You should look to connect with one who handles personal and business bankruptcies. Finding one with accounting background, or with accountants on staff would probably prove beneficial. Why? There may be tax implications in your situation. There may even be losses attributable with a backward looking focus on business and personal returns.
What is the nearest city to you?
Structure your affairs to limit exposure to a failed or bankrupt business.
If you are now a wage earner, sophisticated methods are not going to be useful. If any of the judgments result in liens filed against your personal residence that has equity in it, also not productive.
Living the next 20 years with a million dollar cloud over your head will not be simple.
How much are you earning? Is it over the threshold for you to qualify for chapter 7 bankruptcy in your state with the amount of people in your household?If you can meet the chapter 7 income threshold, and have good earning potential, perhaps giving up the 150k war chest you have now, giving up the home and starting fresh would be the best option. If you are forced into a chapter 13 on personal debts, the court will be your “financial nanny” for the next 5 years. Even that may be a good path compared to some of the alternatives.
Is the 150k part of any retirement account, or is it liquid?
Please answer my questions in the comment section below and lets take it from there.
Readers with questions or concerns about settling business debts are welcome to post below and receive feedback.
About Michael BoveeMichael started CRN in 2004 with a mission to provide people in need with detailed debt and credit help and education. Michael has participated as an expert panelist in federal consumer protection rule making, collaborated on state law changes governing debt consolidation, has worked as an expert witness in court matters related to the debt relief industry. He is available to speak with you about your financial struggle and helps people resolve their debt problems daily.
Thank you for all of the additional details.
Were it not for how the home currently provides for your needs, and how you shared it is an essential part of your current ability to stay afloat, and plan for retirement, I would see only two clear paths:
1. Give up the ghost on all funds, assets etc. and start over through bankruptcy – regardless of all of the implications.
There is more to say about this approach, but I will reserve that for a consult if we connect.
2. Structure your affairs in a way to avoid enforcement of the judgments for whatever period and just get used to living like that.
Definitely more to share on this angle, but it may be moot given the need to refi.
I would like to have an opportunity to sound out my thoughts and learn more from you. Consulting is free. I will email my contact info to the address you provided.
To answer your questions: I know that this is a very complex situation. I am not a typical ” in debt” person with “just” a stack of personal credit card debt to negotitate and settle.
There are many judgments against the now defunct business Corporation…..but those dont count in this situation as it was a corporation….and I am focusing on my personal debt only.
I am right now “treading water” to keep even and to stabilize my life. It has been a long 4 years already. I am working 2 part-time entreprenurial ventures to bring some extra money in. ( 20 k yr perhaps ). My husband collects Social Security now, and has a minor pension from a job long ago. Our overhead is still vast.
Yes we have met with a bankruptcy attny for consultation. I am told that I am not in a position to go bankrupt due to house equity and other issues, according to attny. Due to the complexity of our situation. Attny feels that a judge would not be friendly to me in bankruptcy.
I think as an owner/ stockholder of a successful privately held large business / corp, did what I foresaw over the years to structure things. I dont know how to dig out now from these judgments. From my understanding a judgment in my state is an automatic lien against a house. Judgments expire, I am quite sure, in 10 years. But I am still awaiting a deficiency judgment from one more commercial foreclosure, so yes… this drags on to my old old age and hangs over my head. I would love to be able to settle and negotiate out of this nightmare and turn it into some kind of a win-win.
My “War Chest” is from a recent inheritance…and safely structured. I would give it all up to clean the judgment slate. But….giving up the house is another issue. I am making the majority of my income by renting my house for a profit, and living in the mother in law suite of my home for free. If I give up the house, then I lose my living quarters, all the house equity, and 80% of my income. I lose my ability to have old age security, a roof over my head, and stability through rental income. I dont have a good earning potential without my home,….just minimum wage part time income and social security. If I keep the house and pay off the mortgages, I have a lifetime cash flow and can live forever in the mother in law portion of the house, while renting the main house. I pay most of my overhead through this rental income.
I could never pay off all this debt in 5 years….I still have a first mortgage, a 2nd mortgage, credit card debt that I used to finance the business, life insurance, and health insurance to pay….Paying off a million dollars at my age is not even remotely a possibility…..not in five years; not in the rest of my life.
One other option is to use the entire amount of my war chest…another $200k, to negotiate and dig out from the judgments, but then I also MUST be “guaranteed” to be able to refinance the 2nd mortgage that will come due, or they would be able to take the house anyway when the term ends. So a refi would be essential The 2nd mortgage is $200k. ( yes I used it to prop up the business).
So, to reiterate, my lifetime desire is to negotiate out of these horrendous judgments, to keep my house, and to either pay off or refinance the 2nd mortgage. I am willing to spend all of my trust and inheritance; but not to throw it away. I don’t want to lose my house, and I will fight to my last breathe and ability, to keep my home.
Can you help?