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LLC bankruptcy and credit cards?

417 Views 4 Replies 4 Participants Last post by  mightymoo
My DH has a business that he has been funding exclusively with credit cards. Up to now (5 years in), he's been able to make his minimum payments with his business income, but things have really dried up lately. His business remasters and reissues obscure old gospel recordings, and it's so hard to tell which recordings will take off and which won't. Last year the Black Crowes covered one of the songs on one of his releases, and he "spent" the money (that he expected to get) on a new release. He's supposed to get payments from the band (it was all negotiated with the record label, and they have a contract), but now he's getting the runaround, and the album didn't really do as well as I think they had hoped.

Anyway. Long story short, he has about 20k in credit cards, some in the business name and some iin his name. Income for this year will probably end up around 3k, although I suppose there's always hope that the latest release will start to sell a little better. Or that the Black Crowes will actually pay what they owe him without an expensive legal fight. Next year he'll make even less, unless he releases a new record, which he can't do without taking on more debt. The bottom line is that the business is effectively bankrupt already, but it's his baby and he's just not really able to see it.

Ok. So I'm trying to gather up all the information that might help him make a decision about what to do now. I've been googling this morning, and was freaked out to see that they could come after our house for payment, even with a bankruptcy! He incorporated as an LLC, but if I'm reading these advice sites correctly, he probably 'co-signed' for the credit cards using his personal credit, and so declaring bankruptcy for the business will not discharge that debt. So we would have to declare personal bankruptcy to get out of it. We have just about exactly 20k in equity in our house, so I'm not even sure if we are eligible for bankruptcy??

Does anyone know anything about LLC bankruptcy? Are there any gov't resources to help small businesses stay afloat? Any loan programs maybe? His cc debt is at very high rates now, because he has missed a few payments with Capital One, and they are pretty vicious, I guess...

Like I said, I know that we'll eventually have to see some kind of lawyer/acct type, but for right now I'm just trying to see what our options even are. Any ideas?

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OP, I'm sorry to say it, but what you are reading is correct. Those cards are almost certainly personally guaranteed unless he took some very specific steps to build up his company's credit prior to applying. Filing bankruptcy for the LLC won't do a lick of good if he owes only to credit cards, not vendors. And it's unlikely he's going to get something like an SBA loan if he's looking at only 3k worth of income this year. The lender is going to want to see cash flow that's ample enough to cover the payments.

When you're researching personal bankruptcy, make sure what you are looking at is specific to your state. Each state has its own rules about what assets are exempted, and they vary quite widely.
Thanks for the reply - I was afraid that was the case. And all this time I've been letting him run the business however he thought was wise (I love him to pieces, but he's not the best with money, honestly), thinking, "Oh well - at least it's not *our* credit on the line!" Gulp. Obviously he has an obligation to pay this off regardless, but we just finally dug ourselves out of about 20k of personal cc debt, and it's so disheartening to realize that now we have to do it all over again. Serves me right for sticking my head in the sand all this time...

Anyway, thanks again!
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FWIW, this is not going to help you OP sorry, but this is the type of situation for which declaring homestead is applicable if your state has a homestead law. If you declared homestead on your home, the equity in it cannot be used to settle any debts incurred after that point. Unfortunately unless you did this before he had the debt, it isn't useful to you OP. But for others reading, its a good reminder that you should be declaring homestead to protect the equity in your home. Even if you don't *plan* on getting into debt, anything can happen.

I couldn't find a good national site on homestead laws, but here is the MA one to give you an idea: I know other states have them as well. If you own a home, you should be looking into how to do this - in MA basically a document signed and registered with the registry of deeds will do it.
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