We have gravely wounded ourselves.
Today, as we sat before a bankruptcy attorney for consultation, we have learned that the new bankruptcy laws will probably help to finish us off.
I don't know where to begin. I don't know what to say, because I can't even make sense of it myself. And I can't stop crying because everything we have built together will most likely be carved up and disappear. My personal humiliation is complete, and I write this a broken person.
In the beginning, we had such hope. There was such promise, as we both were poised to live the American Dream of business ownership. We had seen a five-year plan we put in place come to its final stages, and the future looked bright. Today, all I see are dark clouds and fear for our future. So how did we get to this place?
In October 2005, my partner and I decided that it was time to look at business ownership. We wanted to be part of the American Dream of financial self-reliance, and like many Americans, had seen an immense increase in our home equity that could be tapped. As my partner's parents are both ill and needing attention in AZ, the focus became a business opportunity there, with a planned relocation from PA. In preparation, we formed an LLC in DE thinking this would protect us in the event something went wrong, and did it ever. Thanks to an AZ-based attorney (referred with EXCELLENT credentials and references by the way) who dropped the ball on two major issues, we now find ourselves in well over $300k of debt and few options.
We located a business that was sound and could be paid for in cash. After doing exhaustive due diligence, we made an offer and proceeded to refinance our house to get the additional cash needed to buy the business in conjunction with our savings. Part of the purchase agreement of the business was the assumption of $120k of leased heavy manufacturing equipment. As we were a newly formed LLC with no company credit history, we weren't certain how to go about the assumption, but our attorney had an idea: Why not personally guarantee the leases yourselves? The business is sound financially, and there is little risk to yourselves to do so. We were uncomfortable about this, but we kept being repeatedly assured that it was a non-issue. Even asking other business people elicited the same response: Don't worry about it, it's minor." Feeling we had gotten sage advice from several sources, including the attorney, we went ahead (with reservations) and personally signed the guarantees. That choice was the first nail in the coffin.
I tendered my resignation for my then current (lucrative) position, relocated to AZ, and took the reins of the business with excitement. My partner was still back in PA arranging for our house to be rented and working with headhunters to secure a position to come join me as soon as possible.
Things ran smoothly and the transition was successful. Business was moderate, as the previous owner (in his 70's at the time) really had not advertised, but was steadily picking up as I poured profits and working capital into getting our name out there. Things were looking bright, or so we thought.
Two months into ownership, a gentleman paid a visit to our business and asked to speak to me. Thinking it was a possible client, I eagerly looked forward to talking business, but a different business matter was on his mind. He was from the Arizona Corporation Commission, and was there to ask me why we were doing business illegally in the state. Dumbfounded, I asked for clarification. I was told that due to the fact that the owning entity (our LLC) was formed in DE, it was considered a "foreign Corporation", and as such, had to have authorization from the ACC to operate a business within the state borders. He was there to shut us down for non-compliance. A locksmith was on their way to do a state-ordered lockout.
My head was spinning. Could this be happening? Had our attorney sent in wrong paperwork? How long would it take to straighten out?
I didn't know what to say. I had a warehouse full of employees working who were relying on a paycheck, and we were being shut down indefinitely.
I contacted the attorney immediately while waiting for the locksmiths. I had to get him to explain the situation to this gentleman. I got him on the phone and explained the situation as quickly as possible. His response? "Oh, damn, I guess I forgot about that. No big deal, we can get it fixed within a week and you'll be up and running in no time."
But that never happened. We were locked out in mid December, and have never been allowed back in, due to a notoriously slow bureaucracy in AZ. All of our working capital and remaining savings were poured into paying the leases on the building and the equipment, holding out hope it would change. But it never did. And we exhausted our money fighting just to be allowed back in to try to liquidate some the items owned outright to help prop us, and the business, up. In the end, the Lessor seized the property and auctioned off things they had determined to have been abandoned by us, although we had been fighting them not to do it. The equipment leaseholder also liquidated the heavy machinery and presented us with that personal guarantee, telling us we are to be sued for the remaining value of the equipment: a whopping $116K.
During this crisis, my partner lost his job last month due to downsizing in his industry. Scrambling to both try to figure out how to make ends meet personally, I raced home to PA in a panic to try to find a position as well. He found something quickly. The downside was that he took a pay cut of almost $40k just to get income so we could somewhat survive. I am still searching. With a running deficit of almost $3k a month, we can't hold on much longer.
This is the series of events that prompted the search for a bankruptcy attorney. Seems we would be perfect candidates for bankruptcy, right? Not so fast.
Sitting before the Bankruptcy attorney this morning with hope that we could possibly salvage what was left of our lives, we were given the harsh lessons of the new bankruptcy laws. The first thing he did was hand us a piece of paper to sign regarding his services and a Notice now mandated by the new legislation. At the beginning of this paper were the following words:
This Notice and the Statement are required by legislation adopted by Congress in 2005, after intense lobbying by the credit industry. In our opinion, this legislation is designed to intimidate people who genuinely need debt relief under the Bankruptcy Code, and is based on the erroneous assumption that debtors are dishonest.
The first thing we were told was that since our relationship is not a legally recognized one in the eyes of the government, we would have to file bankruptcy separately. Even though all of our assets and liabilities are jointly held, it made no difference in the eyes of the law.
He proceeded to do something called a "Means Test", which would determine our eligibility. We passed (or failed, depending upon how you look at it) and it seemed we would be eligible for Chapter 7. But there ended up being an immediate snafu. You see, my partner's parents had declared personal Chapter 7 bankruptcy six years ago due to mounting and enormous health bills that wiped them out financially. It seems that my partner's name was still on a credit card his parents had issued him to use during college. They forgot to take him off. So on my partner's credit, it lists him as having discharged bankruptcy six years ago on the basis of that one card that was long ago forgotten by him and his parents. Due to some of the new changes, if you have shown evidence of prior bankruptcy in the past 8 years, you are disqualified from declaring it again until 8 years from discharge. So while I could declare Chapter 7, he cannot. His option at this point, according to the attorney, is Chapter 13, or a possible liquidation of assets to satisfy creditors because there is currently no money available to work out a payment plan.
So ultimately, through, stupidity and bad luck on our part, we will most likely lose some of our personal effects like jewelry, cars, antiques, and maybe even the house.
In a heart-wrenching exchange this afternoon, my partner and I both admitted to one another that we had separately been contemplating doing ourselves in, to be done in such a way as to look accidental, so the other could get life insurance to cover our enormous debt. This is how far we have both fallen, and it devastates me that we are even thinking such irrational thoughts. But we are. And we are exhausted...and I am tired of eating macaroni and cheese.
We are not bad people. We paid our bills and taxes, we contributed to our community in terms volunteerism and activism, and as middle class Americans we hoped we could rely on the system to be there to help us if we ever needed it. We need it now, but it doesn't care...
We failed, and now the creditors are coming to pick the bones clean. One more victim of the middle class to chalk up to lobbyists and business interests.
Thank you Republican Congress. And fuck you.