LLCs or Limited Liability Corporations are legal business entities that offer limited liability ownership to its members, meaning that the owners or members are not personally responsible for the debts that the business incurs. At least in theory that’s the case. An LLC that finds itself in a situation where it is not being profitable and debts are running high, can also find relief in filing bankruptcy. However, it is often common that when LLCs are first formed, the owners don’t realize that they may have made themselves liable for the debts of the business by making personal guarantees for the debt that funded the company.

Normally lenders will use the Tax Identification Number of the LLC to extend credit. LLCs are not always profitable, especially when they’re first starting out, and in order for a lender to accept applications and begin processing the requested credit the business either needs to be profitable for the lender to proceed without any additional guarantees, of course these policies will vary by lender. When that criteria is different, normally the lender will still proceed with approval if the owners of the LLC are willing to make personal guarantees for the loans or credit lines. Often this is not explained in great detail or is in small print on the paperwork you sign.

Should this be the case with you, and you see your business taking a turn for the worse, you need to consider this option carefully before you continue with declaring bankruptcy for your LLC. This is something that’s often overlooked during the formation of such business entities. Again lenders don’t always emphasize this point because as long as they have good backing for their money, they don’t care who’s on the hook. So if your LLC files for bankruptcy this will likely extend to you, meaning you may also have to file bankruptcy, otherwise since the liability falls on you, you’ll have to repay the debts yourself.

Be 100% certain that you’re not personally liable for the debt before you proceed, review the paperwork you signed when your loans or credit lines were processed and see if your social security number appears anywhere on the application or approved paperwork.

Only when you find out the structure of the loans or credit on your business, you can begin addressing the problem with a new perspective. If your business debt has a personal guarantee then you should consult a bankruptcy attorney for a better approach to the problem. Your attorney will be able to study the paperwork more efficiently. In a case like this you would not want to prepare and file you’re own bankruptcy petition, you will run into too many obstacles and doubts and may end up filing the wrong paperwork or submitting the wrong information, which again only you will be responsible for.

At the very least consult with a bankruptcy attorney if you feel your LLC is in trouble and you need to get the debt sorted out. Your best option in this situation would be to file bankruptcy chapter 11, you can repay the debts of your business under more manageable terms while your bringing your business back to a profitable state.

Sometime the decisions we make that can negatively impact our financial future are not always obvious, there are too many entities working against our better judgment when it comes to how we handle our own money. I’m talking about commercial entities and the popular trends we pay so much attention to, that contribute to the ever growing “want list“ that we often mistake for the “need list”. I’m gathering a list of general things called “things you should never do with money”, there are many, and this is the first in a series of several future posts. These are some of the things we tend to give into that eventually get us into trouble:

1. Don’t sign up for another credit card when you’re maxed out – This should be a red flag for any credit card company processing your application that you’re not living within your means and you spend more than you should. Will that stop them from processing your application? Probably not. As long as you have good credit and you make your payments on time, even if it’s only the minimum due, there’s no indication to them that you’re a risk. But is this a sound financial decision for you? If you’ve maxed out your current credit card, you need to stop and look back at the purchases you have made and honestly determine if these are needs or wants. If you get another credit card, what’s to stop your from maxing it out also and ending up with now two cards to pay off?

2. Don’t borrow against your home – Here’s another example of a really bad decision in which lenders are happy to help you dig your own hole. A “HELOC” (Home Equity Line of Credit) is, in my opinion, the worst product ever put out in the financial world. Why? Two reasons, these loans always carry adjustable rates and you’re only required to pay the interest. If you MUST borrow against your home, what you should be asking for is a Home Equity Loan, on which you do pay the principal balance every time you make a payment. With a HELOC you’re only required, and 99% of the time inclined, to pay only the interest of the loan. When do you actually pay the balance? If you max out that line of credit and your balance is $50,000 when will you be able to pay this balance in full? When you sell your house would be one way, but if you’re not selling your house or if market conditions end up putting you upside down, how will you come up with the money to pay this off when it is due in full?

3. Don’t borrow against your retirement account – Depending on your plan, sometimes there are few restrictions for borrowing or withdrawing money, and there’s usually a lot of flexibility for you to do so. Some 401K or savings plans will allow you to withdraw certain amounts of money and you don’t always have to prove hardship. Why do this if you’re not in real need? It’s all impulse. You’ll probably say to yourself “it’s my money anyways”. Well…. yes and no. It’s also the government’s money and that’s a huge liability. The money that’s in your 401k or savings plan is pre-tax money, meaning it gets deducted from your pay before taxes, so taxes will apply when that money is withdrawn. Not only that, but there’s usually a penalty associated with early withdrawals, so if you borrow $5000, the IRS will automatically take 20% or $1000, plus any penalties the savings plan may carry. So if you’re not in real need, don’t mess with this account.

4. Don’t invest in things you know nothing about – There are so many products out there about making money by starting your own business or making money online. Look, a lot of people make a decent living by running their own business and doing business online. But it’s not supposed to be easy and it’s not supposed to be fun as it is often emphasized. It is a lot of hard work. Sure it can be enjoyable and rewarding but fun and easy it is not. Many of these programs almost always over emphasize earning potential with exaggerated figures, but if you visit the advertised website you often find that the program is not at all described and you have nothing to go by other than to enter your personal info for someone to call you later. They will often sell you general information on how to start a business but won’t concisely explain the how to. They also offer coaching programs with phony guarantees, which are expensive so think carefully before signing up. You could end up spending a lot of money for something you could easily research on your own.

Foreclosure is the process in which a lender takes possession of the financed property for lack of payment, with the intention of selling the property to satisfy the defaulted loan. The foreclosure process is ugly and it will leave a mark. By law all lenders must provide sufficient written notices to home owners before starting the process, and what’s considered sufficient will vary per state as well. When the bank’s notices of non-payment go unanswered is when foreclosure comes knocking on your door.

What options do you have?
You could qualify for special forbearance if you have lost your job or your cost of living has changed significantly or you’re experiencing any other financial situation that puts pressure on your ability to pay your mortgage. This is something you’ll have to approach your lender about and you must provide proof of your hardship to qualify.

There is something called a loan modification, which means that the original terms of the loan can be renegotiated and adjusted to fit your new financial situation. Again this will be up to your lender to approve. Lenders are not always sympathetic or understanding so you may need help getting through to them on this option and for that you should check out the free foreclosure help post where I discuss a really good source where you may be able to find the help you need.

The short sale foreclosure is when you try selling the property at a severely discounted price in order to make the sale transaction as quick as possible. If you have equity built up on your home you most likely will lose most if not all of it. You’ll need to hire a good Realtor who’s experienced in these types of sales to help you accomplish this. Most importantly however is that you get your lender to agree to this since it will in most cases mean that the loan balance on the property will also have to be discounted for you to proceed with the sale, meaning the lender loses money as well. Both parties must be in agreement before this can take place.

Another option, is a Deed-in-lieu-of foreclosure, where you voluntarily surrender the property to the lender. This obviously does not help you keep your house, it’s an option you can use when you know you can’t fight it anymore and must give up your home. For the lender to accept this option, you must have tried to sell the house and have attempted other options as well without success. This option can sometimes be beneficial to both lender and borrower, since it immediately releases the borrower from all responsibilities of the defaulted loan and for the lender it can avoid the timely and often costly procedure of foreclosing.

Things to beware about:
Once the lender files a foreclosure notice, this becomes public record. A lot of people access these records often with the purpose of contacting home owners to buy their homes and help them save it.

You must understand that there are people and businesses who make a living off of foreclosures. You’ll probably be approached and contacted by people who say they can help and some of these calls are legitimate but you need to be aware that they’re in for a profit that will most likely leave you short changed.

Since you may be in a desperate situation and you know you can’t save your home, you may be trying hard to save your credit, and often people agree to a deal that may be a temporary fix but are not necessarily good for them in the long run. Some of the most common scams out there are “equity skimming” and entities that post as “counseling agencies”.

Equity skimming consists of you doing a deed transfer of your property to someone who promises to help by selling the property quickly, the often will have you vacate as soon as possible and then they will rent the property to collect payments from that while they process a line of credit on your home then never being heard from again. Unfortunately signing the deed over to someone else will not release you from the responsibility of the loan.

Counseling agencies can sometimes help, but some will do nothing more than collect payments from you. Often times the services they offer are things you can do yourself. You should always deal with your lender directly and when that proves difficult then do research for a legitimate company that can negotiate for you.

It’s difficult to think clearly when foreclosure comes knocking so take some time to think clearly and realize first whether fighting to keep your home is worth the effort. If you feel it is and you want to convince your lender to give you a chance and require professional help, then start by researching companies at the Better Business Bureau and search for “foreclosure consultants”. You’ll get results for agencies who are registered with the BBB and many others who are not. So you want to start with the ones that have a record you can look over.

Last resort
When all else fails, which can happen if your lender is completely unwilling to work with you, you can always go for the last resort, bankruptcy. This is also going to require significant effort on your part to get ready and prepare your documents and contact the right attorney to represent you. Bankruptcy has a more severe effect so it’s important that you take the time to understand what it is, what it does, how to prepare and what to expect. Take some time to read about chapter 7 and chapter 13 since these are going to be the most relevant to someone in a position where they could lose their home.

Credit bureaus are not infallible and neither are the creditors that report your credit history to the bureaus. Mistakes will happen, and often times the bureaus do not make it a priority to deal with these mistakes even when you bring them to their attention through their own dispute systems. That’s where credit repair agencies come in, but can credit repair really work for you?

If the information on your credit report is accurate, then there is not much that can be done to change it. However, as I mentioned above, mistakes will happen and it’s important that you keep up with your credit report and address the inaccuracies yourself first. The best time to use a credit repair agency is when there are items that prove difficult to dispute, especially if it involves life changing events, such a death in the family, a divorce, identity theft etc.

A lot can be recorded on your credit report during these events and it can get messy. These are the perfect situations for you to hire someone else to deal with this for you, and it is in situations like this that credit repair can be most successful if there are true inaccuracies on your credit report. You should hire a legitimate credit repair agency that can address these problems correctly and professionally. One thing to keep in mind is that entries that involve small debts will be easier to deal with, normally larger debts are much harder to dispute even for an experienced agency.

There are legitimate companies that can in fact help you repair inaccuracies on your credit report and they have been doing it for years, which is a factor you must consider when deciding which company to hire, how long have they been doing this? There are also a lot of companies that can not really help you do anything, but will be glad to take your money if you let them.

During the much needed research that you will do to find the right agency, you’ll more than likely come across a lot of different sources that advertise aggressively. Beware of the flashing signs and pop up ads that “guarantee” removing all negative entries from you credit report. This is just not possible if the information is true. You can’t hire an agency to repair your credit just because you don’t like what you see on your credit report. If you had late payments, defaulted loans, or filed bankruptcy, you should expect to see these entries on your report. Hiring someone to fix these entries will only prove to be a waste of money.

Back to finding a reliable company to hire for you credit needs. You need to scrutinize a lot during this process, and I’d like to give you the first source where you need to begin your research. The better business bureau (BBB) keeps record of companies who offer goods and services and makes it available to consumers so you can review their track record. Businesses register with the BBB because they want to show they’re committed to quality service. In a way you’re looking at a company’s resume or credit report if you will, when you research them via the BBB.

Enter the words credit repair in the search field at the above link and you may be a little surprised to find that there are only a handful of credit repair agencies that are registered with the BBB. The search results will also display credit repair companies that are not registered with the BBB. It’s possible that more of these companies that are not registered could also be reliable and provide good service, but I would start with those that are registered and have a track record you can study.

Inaccuracies or not, this may get a little expensive. But you stand to be more successful by hiring a legitimate company with a good track record that has a lot of experience doing this, so be ready and budget yourself carefully.

Should I file bankruptcy? What’s a good alternative to bankruptcy?

By now you know that filing bankruptcy should be your last resort. Coming up with an alternative to bankruptcy when you’re stressed and losing sleep can be difficult so here’s some help. But outside of what is listed here, whatever options you believe are possible, research and consider all options to decide whether that alternative is realistic and feasible for you. The following are some of the most common alternatives to bankruptcy:

Renegotiate with your creditors: This can be a successful bankruptcy alternative when dealing with unsecured debt, make them understand that if renegotiating is not possible, they will lose all the money you owe them if you have to resort to personal bankruptcy. This, as you know, is the case with unsecured debt under bankruptcy chapter 7, it gets discharged with no further obligation to you. Secured debt on the other hand will be a little more complicated but still possible. Your home lender or car financing company will know that they must wait around without your payments for months if you have to file bankruptcy. So they may listen to your case but are more than likely going to try to take you through a refinancing deal, which could actually accumulate other costs. So be careful there, this is a renegotiation that needs to benefit you the most.

Debt Consolidation Services: This also could work out well for your unsecured debt, but not all debt consolidators work the same so you need to shop around. You must also be careful with the terms of this deal, some debt consolidation alternatives will cost you more for the simple plan of grouping all your debts into one bill. Many of these agencies can really help, but there are many that only pose as non profit organizations for debt consolidation and are only interested in profit, so do your homework and research them before you agree to anything. You must insist on better rates and this can be an excellent bankruptcy alternative especially if your credit is still in good standing.

Debt Reduction Lawyers: Depending on your current budget this can be an effective bankruptcy alternative as well, since a lawyer would be much better at negotiating terms and rates for you, a creditor will likely respond better to talking to a lawyer than talking to you directly. A lawyer can deal with every single creditor for you and help you take advantage of special provisions and hidden laws and tricks that creditors don’t like consumers to know, but are legal. Your local yellow pages book will have tons of listings for law offices that can provide these services.

Professional Credit Counseling: One of the most common services to consumers and not necessarily a bankruptcy alternative in all cases. If you don’t see the end near you yet, but you see the direction your finances are taking and are uncertain about what to do to avoid collision, professional debt counseling could be what you need. A professional credit counselor is going to suggest drastic changes in your financial routines. They’re not going to ease you into these changes, they will most likely be very straight forward about what needs to change. It is up to you enforce these changes and make this alternative work or you could in fact end up filing bankruptcy

Other sources: Other sources of help may be possible, you may have volunteer groups in your area of perhaps you local church may be able to direct you in the right path. People in these groups are often able to help without charging anything if they offer services. Whatever option you choose, please take care not to simply borrow more money to repay debts, by doing this you’re simply shuffling balances around to temporarily satisfy debts, while accumulating debt in other areas, not really a good bankruptcy alternative.

Don’t let anyone talk you into taking out a line of credit on your home, especially if you’re dealing with unsecured debt. If you do this, you will have taken that unsecured debt and made it secured against your property. Most lenders will tell you this is a good idea. Their job is not to give financial advice, their job is to sell and they sell well because often people don’t know any better, so this is also not a good bankruptcy alternative.

If none of these options seem feasible to you for whatever your circumstances, then it is probably best that you begin your process by first consulting with a bankruptcy attorney. Get all the facts about your case. Not all cases are the same, the conditions will depend on what you owe, what assets you have and whether you’re employed or not. Consult with at least three different attorneys, most consultations are free and you’ll find that some law offices are more personable and more sympathetic than others. During this consultation take the liberty to ask your attorney for any bankruptcy alternatives he or she can recommend, again they may be able to come up with something you haven’t thought of.