Bankruptcy. A lot of people today are coming to bankruptcy due to starting a new business, and the best thing — a lot of times people are investing properties, the market turns down south, and then investments turns upside with the mortgage. Mortgage becomes more than what the value's worth, maybe they have nobody's renting the property from them and they have to go into foreclosure; the property's being taken away, maybe the bank is actually coming after a judgment trying to actually garnish their wages. People sometimes turn to bankruptcy for protection.

Now, whenever you go into business or if you're investing money in property or something that has some risk to it, you've gotta evaluate what it is that you're putting in risk. One of the ways is you know that your option's always bankruptcy, so you've gotta evaluate what it is that you might lose in bankruptcy. For example, if you just bought property, a second property's investment, and you have a house. Let's pay it out. Well, if your investment property's under your name and you're a co-owner of that property with a corporation that you start up, or you just own that second property by yourself, you have to realize that your primary residence where you live might be at risk if you sign under that mortgage. Therefore, if you cannot make those payments on that second property, the bank can go after your primary residence. Of course, if you don't have that much equity in your primary residence, then the mortgage of your second property cannot go after your primary residence.

So whenever you're trying to invest somewhere starting a business, you've got to actually evaluate what you're putting up at risk, and one of the options may be bankruptcy, so therefore you got to evaluate what's at risk in bankruptcy.

Now, you've got to also remember the exemptions that you also have. So basically let's say you start an S corporation and that S corporation — or an LLC — we often see buys the property, and you and the LLC are both co-debtors under this mortgage of this new property that you acquire. Well, you got to analyze if you cannot make those second property mortgages, something happens, or maybe you decide to surrender that property, there's a deficiency judgment. What is that risk?

Now you've got — maybe have your primary residence. Evaluate how much equity you've got in there. If you've got a car that's paid off, how much is that worth? You also have to keep in mind the exemptions that is provided to you.

In Illinois, the exemption for a house if $15,000.00 per person. So if this is a joint bankruptcy filing, the husband and the wife get $30,000.00; if it's single, you have $15,000.00. So when you're buying investment property, you want to think. If I'm going to bankruptcy, is there more than $15,000.00 from a loan that we're gonna file a joint bankruptcy in my home? Is there more than $15,000.00 of equity?

For your car, Illinois gives your $2,400.00. Therefore, the difference between how much you have in your car — so that means the difference between the value of your car and the loan that is still due on that car. So let me give you an example. If your car's worth $20,000.00 and you still owe $17,000.00, you have only $3,000.00 of equity. Realistically, you have $2,400.00 of exemption; $600.00 is not protected. However, the trustee's not gonna be able to sell your house — sell your car — with a cost and still make money. Therefore, if you have the only equity in your car is $3,000.00, you're fine.

You've got to look at other exemptions, such as exemptions that are provided for your tools in the business. You have about $1,500.00 for that. After you analyze, then you might actually see what there is to lose if business goes down and this investment goes down. However, sometimes you can set up an S corporation, and that S corporation can actually start the business. However, most of the time, if it’s small S corporations, the banks, prior to giving you a loan or some kind of mortgage, they will have you so-sign under that. Now, some people don't realize that, 'cause that S corporation is the owner of that property or of that business, but so is the owner of the S corporation is also. Basically, there's two owners of the business, and when there's bankruptcy, it's not just the S corporation that has to go into bankruptcy but the owner.

Only if you have enough assets within that S corporation will the bank actually consider giving you a loan without actually cosigning the owner himself. Otherwise, they're putting themselves at risk, and they fully realize that this is unsecure loan and they won't get their money back. So when you're going into business, even though it could be a corporation, you must fully realize the risk, 'cause it's not only the S corporation that's gonna be liable, but you as the owner of that S corporation might also be liable.

Now, a second issue that has to be addressed is sometimes we see people, especially nowadays, that the market's going down for houses. Prior to this downturn in the market, a lot of banks were giving out loans, loans that were much bigger than the value of the houses. Now, the prices of the houses are going down, causing upside down mortgage, owing more money for the house than it's really worth. Now, this also happens for businesses or investment properties. Banks a couple of years ago were giving out loans to almost anybody, not actually evaluating the amount of money that the owner of the investment property is making and not evaluating the true, accurate worth of the property itself. Therefore, a lot of people right now are coming to bankruptcy with much — with a high mortgage, but the value of the property is very low.

Of course, if you're gonna start a business or you're looking for investment property, you're looking for money. You go into the bank and you're asking for a loan, they all of a sudden somehow provide you with this loan. There is no problem if they're willing to give you the loan; all you've got to make sure is the interest is what you can afford, if you can afford those payments, and you can sign for that if you think you will be able to make those payments. However, sometimes the person that's actually making your loan maybe hint toward making the loan, putting some numbers that are not accurate. For example, when you're applying for the loan for investment property, they're gonna ask you for your income. Even if the person is trying to set up the loan for you might kind of hint towards putting a bigger, larger number, that would not be your best option, and it's not recommended because that is fraud — quoting different income than what you really are getting. If you do do that, if you put that your income is higher than it really is and you take out that loan for that property, upon bankruptcy, the creditor — the bank from whom you look out a loan — or actually the second bank, which might have bought the loan from the first bank, might actually bring a motion saying that, "Well, this loan was taken out fraudulently," and all it has to show is that you filled out and signed paperwork saying that you got, for example, $100,000.00 annual income, and in reality your taxes are gonna show maybe you only made $30,000.00 annually.

So by putting in wrong numbers, you kind of put yourself at risk to not being discharged, and if this happens and the creditor actually brings this motion — the bank — you can actually get banned from getting discharged, and basically you're gonna owe that deficiency if this investment property's gonna get foreclosed and there's gonna be a deficiency judgment, and that deficiency judgment, which is he difference between what you owe the bank and what the house is gonna sell — the option, which is usually a smaller price than you can get at the market. That is what you're gonna owe the bank, and it's not gonna be discharged. But if they can prove this is fraud, even though this does not happen often, it could happen. So when you are taking out a loan, maybe you are being encouraged by the guy that's signing out the papers in the bank to put in the higher income, it's not really a good idea. 'Cause if you are putting in the right numbers, you always have that comfort of filing bankruptcy, and just if you can, start a fresh start in Chapter 7. If you can't, file for Chapter 13. Pay out a portion of that debt. But if you do put in the wrong numbers fraudulently, then you might not be banned from getting a discharge.

Now, another time that you actually want to think what is at risk is when you use credit cards. If you have a business, you might want to attempt to use the business credit cards instead of your personal ones. There's many benefits; some business credit cards even offer better rates than personal credit cards. But there's also other advantages to that. If you're using a business credit card, make sure that the credit card reports to the credit bureau for businesses and not personal, and if the credit card is business is the only debtor and you're not, then that business is the only one that's liable for those credit cards if it's a corporation and not a personal business. Therefore, if it's a corporation and the credit card is under the corporate name, then if you ever get in trouble with the credit cards, you can file bankruptcy for the corporation and not be liable self.

Also, if you're not a cosigner on that credit card but just the corporation, then the credit history is gonna be affecting the corporation itself and not you. Therefore, the corporation sometimes cannot make the payments; you're not affected but just the corporation, and your credit history can stay fine even though the corporation might get a pretty bad credit history if you stop paying some of your bills.

Also, with some of your business credit cards, you want make sure that those business cards, as I said, report to the credit bureau. That way, the credit history improves on your business, and your business grows in credit score, and your business will be able to take much more, bigger loans on the business, on the corporation name itself instead of having you cosign, and that will kind of limit your risk. 'Cause therefore, because the corporation's credit score's gonna grow because those credit cards are gonna be reporting to the credit bureaus, the credit card will have a higher and higher limit, and you won't have to cosign, and you won't have to take the personal obligations for those credit cards, but corporation itself might be just enough to take on those liabilities. If something ever happens and you're not on any of the corporation liabilities, the corporation itself might file for bankruptcy without having you for bankruptcy.

Now, let's say you do get in trouble with some of your investment property. What do you do? Well, you have to decide. Are you serious about bankruptcy? Is this really want to do? I mean sometimes you call the bank and you can't make the payments, and they won't negotiate. Well, the truth is if you are current on your payments, they won't be negotiating with you. Imagine yourself in their position in the bank. Somebody owes you money, and they have been making payments month after month, and then they come to you and they tell you, "I need help." You're not gonna negotiate with them; they have been making all the payments. However, if you do stop your payments, the bank most likely will be a little bit softer and more likely to negotiate with you, maybe work something out with you maybe for a short, say maybe __________ foreclosure.

So one of the options you want to try before bankruptcy sometimes if you have investment property is actually stop making the payments if you know in the long run there's no way out, that you won't be able to make these payments. Once you actually stop making the payments, the bank will be more willing to negotiate with you knowing that, well, you are really in trouble; you're not just saying that; so they decrease your payments. However, if you do decide to file for bankrupt and you have this property, the property that you do not want to keep, you might as well just stop the payments. There's no point of keep investing the money for property that you do not want to keep. Since you are gonna give up that property and you're gonna surrender it to the bank, you should stop making the payments if you're 100% sure you're gonna file bankruptcy.

Now, if its investment property such as condominiums, the foreclosure process can take up to a year. I mean you might be getting phone calls and might be getting some letters from the creditors, from the banks, but you are gonna keep that property for some time until the whole foreclosure goes through, and sometimes that can take a year, sometimes even longer. Now, the property that you actually do want to keep, such as maybe your primary residence, you want to keep making those installment payments as they come due. Maybe you want to keep your car, you're planning on reaffirming on your car, same thing. You want to continue making those payments.

Another thing that you actually should look into when you're thinking of surrendering property in a bankruptcy, are there any other co-debtors in that property? For example, if you bought property and you were partners with somebody else, and that partner's also liable under that investment property or I'll say even the business, just you filing bankruptcy is gonna make him liable. You have to work that out with him if he wants to also file bankruptcy or if he's gonna take on that liability, just truly understand what you're putting on a risk.

Now, another option you have is, let's say this business goes south and it's doing pretty bad, and you're about to sell the business and its assets. __________ invest maybe a lot of money in this business, and your — I mean you would love to have this business, but the only problem is you owe them too much money for the business. Let's say the trustee takes the assets and he's about to sell them for what the price is, and the price will be probably lower, and you'll be probably more than willing to give them the money if you had the money to actually buy this business. 'Cause you probably know more about the business than anybody else since it's yours. Your option is you could buy the business or the assets from the trustee. I'm gonna give you an example.

Let's say you own Business X, a corporation, and the trustee sees that corporation as an asset. He's about — and he decides to seize that corporation in Chapter 7, and he's gonna just liquidate it. Well let's say you have a friend that has the money that could buy this corporation from the trustee. You can ask the friend to provide you with the funding, and you can actually purchase back the corporation for the price that the trustee was gonna get to liquidate the corporation. Now, this gives you back the corporation for the price of the liquidate — for the price that the trustee was gonna liquidate it for, but at this same time, it gets rid of those unsecured debts that you already invested in this corporation. So therefore, you could have invested let's say $1 million to this corporation unsecured debt, and there's a lot of maybe assets that are maybe intangible, such as good will, such as good location, and the trustee's about to sell this whole corporation away, maybe for $100,000.00. If you can get that $100,000.00 funding from somewhere and actually buy from the trustee, all of a sudden, all that unsecured debt that you have may be uns — or that you invest in that corporation gets wiped away, and you end up with a corporation which has a lot of money invested in it for only $100,000.00. Now, this could definitely be an option — if you have the funding, of course.

Now, let's talk about some of the paperwork sometimes that goes into deals. When you're out filling out businesses, when you're out filling out paperworks for the businesses, just like loans, you want to keep everything correctly so if you do file for bankruptcy, there's nothing that can raised by the trustee, by the creditors accusing you of fraud.

One more thing: If you are filing for bankruptcy, a lot of times you already asked your relatives for some funding 'cause it must have been hard times for you. Sometimes for businesses, it could be a lot; could be arranged for $100,00.00, and sometimes personal circumstances, it could lead — you can even have $2,000.00 of debt to your relatives, your friends, your wife, maybe ex-wife. You do not want to pay off those debts prior to getting a discharge from bankruptcy. The reason of that is the trustee sees that as if you're preferring your relatives over other creditors, and therefore he can to actually after those persons such as your parents, your relatives, your ex-wife, to get that money back from them and actually get back that money. So therefore, if you owe money to any related people, just wait until bankruptcy discharge to start paying them back. Of course, remember that is unsecured debt, and it is discharged. So whether you want to pay them back or not you're not legally obligated unless it's secured loan and you reaffirm this.

Now, another thing that I want to cover is I already covered that if you want to surrender the property, you should stop making payments. Well, the same thing goes for credit cards. If you don't want to use those credit cards and you're about to file bankruptcy and you decided to file bankruptcy, stop using the credit cards and stop paying for them. Save up the money; you're gonna need it. Where are you gonna get the funding, you might ask yourself, to actually pay for some of your expenses? Well, look if you have some funding in checking accounts, savings accounts. Those are actually assets that the trustee may seize. Remember, you have $4,000.00 of wild card exemption. This can be used on anything you want. If you have $4,000.00 in a checking account, you can put that $4,000.00 there. Of course, remember you have household goods, normal clothing and other things within your household that you want to protect with that $4,000.00. Therefore, if you do have money in your checking account, you might want to use that for just regular living expenses; savings account same thing — regular living expenses. Remember the trustee's gonna be looking for all the assets you have.

Sometimes you may even forget to list some of the assets. An example of this might be a person comes in and he just happens to forget that he has a diamond ring that he actually bought for more than $10,000.00 a couple of months ago for his girlfriend, who he's gonna ask for an engagement. This is something that you might want to list. Now, whether the trustee's gonna want to go ask for this engagement ring, that's another question, but this is something you want to list. So in case something ever does happen, your lawyer can actually protect that diamond ring with the $4,000.00 exemption, or he can make sure that the value — the resell value which he can realistically sell that diamond ring — is less than the exemptions that you have. That way it's covered.

Now, remember, another option they say — let me just give you a realistic example so maybe you have a better grip of this. Let's say that you have a diamond that you just bought for your girlfriend; you're about to ask for an engagement and you just bought it for $10,000.00. Well, realistically, the value that you can sell that diamond back is maybe — I'm not a diamond person — but maybe $7,000.00. Now, you do have that $4,000.00 of exemption, so you can just put that $4,000.00 in that diamond to make sure it's not gonna be sold, and the trustee, if you don't have the household goods, I doubt that he's gonna come in and try to sell your furniture or try to sell your clothes. So you put $4,000.00 in that diamond. Now, there's $3,000.00. If it does occur, the trustee actually comes in and says, "This diamond's worth $7,000.00. You have exemption of $4,000.00; there's $3,000.00 available. I'm gonna sell it." If that does happen and the trustee actually decides to sell off this engagement ring, what you can do is you can buy it back. You can ask somebody if you don't have the funds for $3,000.00 to give to the trustee, that actual $3,000.00 that he would have picked up if he sold the ring, and then you can keep this diamond ring. That's one of your other options.

So sometimes you just want to maybe — I wouldn't want to call it taking a chance, but if you do know that you can get this $3,000.00 funding from maybe your parents or somebody else, a relative in case, then you list that diamond, you put the value — the resell value, which is pretty little after you buy it. Once you buy it, the value of that ring should decrease. Then if the trustee after you put that exemption in, $4,000.00, they'll come after it; then you might want to have that funding somewhere to use, that $3,000.00 to get that engagement ring.

Remember not disclosing something is what can actually bring a lot of problem. If the trustee does find out you didn't disclose something, it could be counted as perjury, there could be problems, this could be suspicious, you can get — you — maybe they won't give you a discharge. So by disclosing everything, you're playing it more safely, not being fraudulent. I think as long as you have a good lawyer, you can put the exemptions right. Sometimes you can be just fine with the exemptions and some of the options that are available through bankruptcy and using legal ways.