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My Real Estate Empire is Crumbling and Taking My Credit Down With It. – Chris

“Dear Steve,

I have been trying to figure out what to do for months now, and I just need some advice and I have read some of your past responses and it appears you cut right to the point which I like.

I started a Real Estate company in 2006. I bought some investment properties, did some rehabs, and made some really good money for a few years. I was able to open up multiple credit cards, and lines of credit under my different LLC’s and S corp. The problem was, since they were new companies (less then 2 years old), they were all linked to me personally although they all are in the name of the business. The last year and a half, it has all went South!!

I owe over $130,000 on my business credit cards and lines of credit all linked to 4 different LLC’s/and 1 Scorp. I don’t have the income coming in to pay these anymore. I also have run up over $40,000 on my personal credit cards to help the business survive hoping things would turn around which it just doesn’t seem it is going to anytime soon. I am currently current on all the cc’s and loc’s though.

I have been able to short sale 4 of the rental properties, but I still have 3 left that have all lost so much value and I have zero equity left in any of them. I am behind on payments and taxes on just 1 of them that I am trying to short sale. The other two have tenants in them at this time which are breakeven cash flow each month.

My question is, I realize bankruptcy is probably my only way out of this, but I just was wondering if there is anyway to BK just the LLC’s and Scorp without having to personally file BK. I can manage paying down the $40,000 personal debt over time. The other thing is, is that my wife is not part of the business debt and I have a business partner with the business debt although I am the primary applicant on all debt as my credit rating was 789 when I started my business and his wasnt that good. I am trying to avoid having my wife go through the BK mess as well.

I have a full time job making $75,000 and my wife works part time (due to the newborn twins at home) and makes about $45,000. We have both cars paid off which they are worth $7000 each and we have about $15,000 equity in our primary house and I have over $80,000 in an IRA. I may be let go from my job at the end of this year though and I am worried that if I get put into a Chapter 13, and then get laid off, how am I going to be able to pay the negotiated amount agreed upon during the Chapter 13 proceedings. Do I need to wait until after the short sale to file BK? Can I file a Business BK only, or am I going to have to do a personal BK? Please help. I am just so lost on how to start and it feels like I have Mt. Everest to climb to fix this problem and it is seriously draining me and my family life!! Any advice you can provide would be most helpful. I appreciate your time.

Thanks,

Chris”

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The Answer

Dear Chris,

Since I wound up in bankruptcy as the result of my illustrious real estate career, I can sympathize.

Here is where the problem lies, you are right, as a new business you are asked to personally sign obligations in case the company folds.

I have a couple of questions.

1. I’m not sure if the mortgages are only in the name of the company or you guaranteed those also with your partner?

2. Are the credit cards in your name alone or are they joint accounts with your wife?

What I suspect is that while we might play around with some semantics and technical issues, at the end of the day you’ll find that your personal life is tightly intertwined with your personal life in this mess.

An LLC and S Corp are both separate legal entities. If you as an officer did not personally guarantee the debt then the debt would die with the corp. However, in the case of the credit cards, those will survive the closure of the LLC and S Corp and land in your lap.

Best advice, click here to find a local bankruptcy attorney you like and come up with a plan on how to deal with this once and for all. It seems that one approach would be to hold onto the two break even properties and turn all the rest back and then do a personal bankruptcy to close the door on everything.

It’s time to move forward.

Big Hug!

My Real Estate Empire is Crumbling and Taking My Credit Down With It.   Chris
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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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