Coping With Business Failure
My thoughts are, take pictures and inventory and list here on the WOODWEB Exchanges, Craigslist and E-Bay. Then consider setting a sale date and running your own auction, or call in the pros, who will handle the whole thing including advertising for a percentage.
When it's over, are you leaving SoCal, or have you lined up employment for your talents to carry on?
From contributor J:
Can't you rent a truck and get out of California? I was talking with a guy out of the Midwest and he's selling all his equipment on EBay and doing quite well at it. He has plenty of work but is going into retirement, and is going to make another product line (wood item, but not cabs). Turns out he gets top dollar for his cabinets. If the banking system doesn't get itself together, none of us are going to be working. Thanks to the greedy few once again on Wall Street.
From the original questioner:
It is still up in the air as to whether or not I stay in SoCal. Honestly the state makes it near impossible to own a small business. I pay more to the state than I do anyone else. On top of that, it's too expensive to rent a shop. In my area they are going for 1.50 and up per sqft. That's sickening. I am paying just over a dollar now, and am behind a few months. I am considering working in my garage for a while, but the city doesn't allow it, so it wouldn't last too long. Neighbors are whiners. I would definitely consider moving out of state, I just don't know where. I don't have work lined up because of that too. I don't know where I'm heading, but it will surely be more affordable than here. If anyone has an opening (preferably in a fine furniture shop), let me know. I would love to be able to close the door and walk through another. I never dreamed that I would be in the bankruptcy stage. It is all too real now.
From contributor I:
Hate to hear of your challenges. It's happening to a lot of folks, including companies with trillion dollar balance sheets and enough Harvard MBAs to field a few football teams. That said, let's get down to the nitty gritty...
So other than your past due rents, you have no other liabilities (taxes, payrolls, materials, repair work, subcontractors, held customer deposits, etc.)? If you do, and with the rents you need to shut down clean, you can't just walk away without leaving it wide open for your landlord and other creditors to go after you.
You need to contact your attorney and file for Chapter 7 (liquidation). Depending on your size and how bad the situation really is (used woodworking equipment is slightly less valuable than its weight in cow manure), the court may allow it or may order an immediate liquidation, which will usually be run by your largest creditor if you are unwilling to do so.
Don't just walk away if the State of CA is owed anything. They will hunt you down. Landlords are only slightly tamer. The IRS will destroy your financial future until they get theirs. Bankruptcy exists for these situations; let it do its job.
All of the above assumes you are set up as an LLC, C Corp, S Corp or partnership. If you are a sole proprietor, shame on you and welcome to personal Chapter 7 or 13, which can and will be a real pain it the butt for a few years.
From the original questioner:
I am ashamed of what has happened. I let my ex-wife control the business. All the accounting, billing, payroll, etc. She left me with a big mess that I have no clue how to work out because instead of running my business and learning how, I continued to be a woodworker. I have no business sense, I just make a good product. I would have never started my business had I known I'd be getting divorced. Now I will never trust a significant other in my office for any reason. I do owe the IRS and have a payment plan with them set up. Other than that, I've kind of been unemployed because of lack of work. If only I could have remained a worker bee, none of this would have happened, and I wouldn't be about to lose my house, file bankruptcy, etc. I may as well buy a tent and get a bottle of my favorite liquor. Does anyone have any spare change?
From contributor B:
I am sad to hear this. I remember when you first started posting a couple or three years ago. Filing bankruptcy may be the only way to go. But if you're broke and can't afford a lawyer for that? I do believe that moving out of state would be your best move. Yes, you will have to pay the Feds before anybody else. They will get theirs first. I would consider the south or southwest, maybe Texas or La, where there should be more work now recovering from the hurricane like it was 2-3 years ago. The south is economically depressed like the other parts of the country... No work, no jobs. Some time ago there were postings that said it was still strong up in the Northwest and Vancouver... wasn't it?
From contributor G:
Don't move to Texas. You will need deep pockets here. Commercial projects like schools, city and state will take an average of 4-6 months to pay. And your competitors will build butt joint boxes (no dadoes). They will also use contract labor at $7 per hour. They have no workers comp insurance. Texas and the South have this Right to Work Law which means they can and will discriminate against the over 50 group, the handicapped and any other race.
From the original questioner:
I tried to get her to set us up as a LLC and she refused. Said it was easier to deal with the taxes as a sole proprietor. Her laziness is a major contribution to why I am failing. She was the main marketer and when she left, there was no business. That means she was waiting for the phone to ring instead of advertising and marketing. That worked for the first 3 years because we were strictly referral based. But with the recession nobody has been doing much, at least in my market.
I don't know where to start to file bankruptcy. If I can't pay any of my bills now, how can I afford a lawyer to do this? That doesn't make sense to me. I have a list of people I am going to pay with the last sums of the job I am working on. Other than that I am tapped. As far as a liquidation sale, I don't own anything outright. The tools are on credit cards and everything else is financed (house, truck). So what is my first step to file, and can I do it without a lawyer? I'm going to try to sell the bigger tools first. That money will help me keep the IRS at bay and help to get me out of the shop so she can move someone else in.
From contributor T:
Forget the shame. It is unwarranted and not useful, so let it go!
Liquidate whatever you can as quickly as you can. This probably means your house too, but you already know that. Hand it over to the bank if necessary, but you have lots of time before a foreclosure will actually put you out. There are options with a house; forbearance, short sale, etc. Flipping in this current market is close to impossible unless you have lots of equity and are willing to give it up to the buyer.
Surprisingly, the IRS is 2nd or 3rd tier creditor in a bankruptcy (as long as there is no fraud involved). You can file one yourself but I wouldn't recommend it, and you don't need to do it immediately anyhow. Your credit is most likely already trashed. Worry about that later.
Right now, you need to concentrate on finding a place to land, a job hopefully, or a safe place (family, friends?) to catch your breath.
I know others in this biz all over the country who have had to do this in this last year. You are not alone. You can only control what you can control. It's a waste to spend your time wondering why you couldn't teach the cat to bark.
The Northwest and Northeast are the only places I know of that claim they are intact. Liquidate, find work, and move on. Freedom's just another word for nothing left to lose. Sometimes letting go is the fastest road to recovery. If you still have two arms and two legs you can survive this as long as you don't allow your spirit to be amputated.
From contributor P:
You might be able to fall back on doing cabinet installations. A lot of shops sub that out and it is usually good money. Not having much luck right now myself, and just took a job with a door and window outfit. So you're set back a year or two. Big deal. That is what I tell myself, anyway.
Credit cards are bad news all the way around. In my experience they are not interested in negotiation and will let your balances about double, then sue you, then liquidate your assets. They run people right out of the country!
In my area (SW Virginia) a decent 1200 square foot shop in a safe area will run you $500-700 dollars. Really very reasonable. I've tried moving around to better areas and have had mixed luck. From CT to San Diego to Virginia. Each place has its pros and cons. No one really better than the other except I don't see how people can afford to live in San Diego. Everywhere is the same story, low wages, higher prices.
From contributor A:
If you are sure you are going to file, then quit paying people. Once you file, anybody paid within 90 days of filing may have to give it back to the court. You should see a bankruptcy attorney - it's a few hundred for the conversation.
From contributor Z:
That is correct. If you are going to file, then stop paying people now. If you pay any of these people over a certain amount, the courts will force them to give back a percentage to be redistributed to all your creditors by the trustee anyway. The only one you need to worry about is the IRS.
As someone mentioned before, since you are not a LLC, S corp, etc., you will need to file chapter 7 or 13 or your creditors will come after you seeking judgments. In filing bankruptcy, you get to keep a portion of your money and items. Every state is different but you will be afforded a certain amount you can keep in each category, i.e. clothing, household items, tools, wages, earnings, etc. The benefit is you won't have to worry about getting sued 2-5 years from now when you are back on your feet. My guess it will cost you around $1k - $2k to hire an attorney and file. Good luck to you.
From contributor I:
First thing you need to do is stop writing checks to anyone. Most of them will come back if anyone is being paid on newer invoices than your landlord or other creditors. Put together what cash you can. This will be protected by the courts to pay the attorney (gotta love lawyers and judges). Since it is a sole proprietorship, it will be a personal bankruptcy, which also means you shouldn't lose your home, but you may lose your vehicle, depending on the creditor.
If you want to keep the house you will probably have to go Chap 13, otherwise go 7 and everything will be auctioned off to pay down the secured creditors. You may still be responsible for the secured balances although this is not typical. Your credit score will be hurt tremendously, at least in the short term.
From the original questioner:
What if my house is worth significantly less then I paid for it? All property values here fell over the last 3 years. Also, I just turned in a leased vehicle at term, and purchased another one. The reason I did this is because it would cost me the same monthly payment to refinance my lease as it would to purchase a new one. It just made more sense to me to get the new one at 0% interest than to refinance at whatever the rate was. The only thing I haven't paid to date is my shop lease. Everything else is current, but falling behind right now. There is no work coming in, so I am for sure going to miss payments on most of the things for this month.
With that in mind, my credit score has only been affected because of having too much credit. It is still in the high 600's. I believe when I bought my truck it was 690 or more. When my wife left me in April it was 810. So I've been using the credit cards to live for the last few months. They even lowered my credit limits on them because I owe too much.
If it weren't for the IRS, I'd probably be able to sneak away with little damage. However, my money has been going to them and not so much the cards. This last month I paid less than the minimums on two cards. The minimums on those cards doubled. One minimum is as high as my wife's BMW X3 payment. Ouch. So now I owe 65k or so on credit cards, 25-30k to IRS, 4500 mortgage, 550 truck, 20k shop lease (I'm behind almost 5 months), 1500 child support for my daughter (this is way too high and I'm struggling in court with it). My ex is relentless, and lied on previous tax forms saying she didn't work for me, thus meaning that I brought home all the income for the year. She's using half of this to pay for the Beemer). Seems to me that I got into a sticky situation. If I understand correctly, I don't think bankruptcy would even catch me up. I only own 13k worth of tools and they were purchased on the cards. Everything else already belongs to the bank. I guess I'm screwed.
From contributor Y:
Don't feel lonely. I nearly lost everything last summer/fall. I sold off my trailer, some toys (camper, 4-wheeler) and my only employee left/let go. I then took a public job I never thought I'd see myself doing. That got me in pretty good shape through the winter. I even lucked out at my new job and won $5000 in a contest there. What did I do then? Quit, took a few promising jobs in the shop and when they were gone (finishing last one as we speak) and the $5000 was spent, I'm back in the same shape. Work just stopped again. I have leads for later on in the fall but I'm done. I tried to make it work and for 15 years it has raised my kids and provided a good living, but with the state of the building market in my area and everywhere for that matter, I am lucky to be getting away intact. Contractors that I worked for and tried to work for are going under around me, losing it all. My advice at this point is don't do what I did and look back. If you have done all you could, that's all you can do. Like someone said about teaching the cat to talk. No houses, no contractors = no cabinet jobs. Now where'd I put that job application?
From contributor Z:
I don't pretend to know CA bankruptcy laws, but I believe all the debts would be wiped out, but federal tax and child support obligations with a chapter 7. Chapter 13 restructure would allow you to possibly keep the house, but then you are also left in a position of needing to keep paying off your debts, albeit at a lower rate than you have to do now.
Either way, you are looking at 2-4 weeks to get the paperwork put together for the automatic stay to be put in place, then it will be another month or so after that before you go in front of the trustee to complete the process. Best bet is to get in touch with an attorney ASAP. They will be able to advise you on how best to approach what you are getting ready to tackle.
From contributor A:
Go file a homestead exemption on your house; it may protect it if you want to keep it. If you are upside down on the house (owe more than it's worth), then be careful in how you get rid of the house. If you owe 300k and it's worth 200k and the bank takes it back without foreclosure, you just got $100k in income = taxes owed, so be careful - you should be able to keep a leased vehicle in bankruptcy as long as you are making payments.
From contributor Q:
Try to attach yourself to any of the investment banks that have gone under... Then the government will bail you out at your/our expense. You and others are seeing the end result of the last 7 years of rule by 43. I left SoCal in the early 80's when it dumped as now and it was the best move I ever made. My advice is get out while you can, and not in Durango. Look at other countries...
From contributor J:
I've been asking my suppliers for years about who's doing what in the Northwest, which areas are busy, which are not. Here's what I've heard from my door company (CDS), local hardware store (sells all over Oregon) and local hardwood supplier, and one other architectural millwork company. Some cabinet shops have lots of work, some are hiring right now, some are slow but busy and are very concerned about the future (no new orders I guess), some are really slow. Builders can't sell their spec homes, but some do, and banks are requiring them to buy them (which they turn into investment properties, rent), some are losing unsold trac homes to the bank, one by one. Bend, OR is very, very slow. Eugene, Portland, Seattle have a lot of commercial construction going on. Remodels are doing well, custom homes are still going up. Banks are not loaning much at all for new spec house construction loans (what else is new).
You could land a job up here, and it may not pay very well, but it could give you some time to hide out from creditors. Lanz Cabinets in Eugene has a huge banner that says something like "now hiring." They just expanded big time, went high tech all the way. Other than that there's a lot of laid off RV builders, semi-conductor employees. But a guy with tools can usually find work. I'm slow but stuff still comes in. I talk with other cabinet shop owners and they're busy, some booked until March.
From contributor M:
Maybe this is just the token female response, but be a little vindictive (because your ex most certainly is). If you're not paying child support through the courts, cut her off a while. Yes, she's going to come after you, but only after you've had a few months to try and find your footing. Not to mention - I'm sure the IRS would love to know she's committed tax fraud.
This happens to too many people in this industry - I've been dealing with it since my husband and I got married - because of the same issue. His ex-wife set him up as a sole proprietor and then cut out Uncle Sam to blow money on whatever she wanted (kinda like your ex's BMW)...
I don't know California laws enough to even pretend to know what you'll be able to keep, but I do know you'll make it out of this. As far as the IRS goes, yes you'll owe them - but you can owe them a long time before they really come after you. Give them another call and see what they'll do to defer/forbear your debt. It's a better option than losing everything for the sake of a down economy.
If you haven't been served with an eviction notice on your shop, you've got time. Pay off the rest of it, and let them evict you. It'll take them about a month from when you get your notice (you'll have a court date, and the judge will order the eviction for a certain date). Don't leave them anything there to remove.
You obviously have friends to lean on while you catch your breath. Do that. The ones who are there for you while you're down are the only kind of friends worth having. And if you find your way to the South (it can be a great place to hide sometimes)... things are slow, but busy - as long as you're willing to do a mix of projects. We've stayed that way only because we decided to subsidize with commercial work - and commercial everywhere is still solid as far as I can tell.
Good luck, wherever you find yourself. Here's hoping the "karmic hammer" finds your ex, too.
From contributor T:
Don't know if you are a fisherman, but you need to cut bait. This thing you are reeling in is a shark. If you stick with it and keep reeling, it will bite you, and take off an arm and a leg.
I dissent on the vindictive stance. Twill only turn your hurt into bitter and angry and keep this wife/attorney's cat and mouse game eating you, your money and your time until there is nothing left. The art of divorce is to use their own energy against them (much like the martial arts, Southern Preying Mantis style). When they are coming at you, just step aside and let them fall into the pit of stench they are trying to push you into. If I told you how I got creamed by my husband, you would see that standing up and fighting them is exactly what they want. This is how they break you and take your money, which you will never get back.
I have a book coming out soon about how to set up and destroy a spouse. Its title is going to be something like "Buy My Book Before Your Spouse Stops Screwing You and His/Her/Your Attorney Starts." It basically tells all the dirty tricks my spouse pulled and how incredibly skewed the court system is. Could end up on the best seller list, me thinks. Staying out of court as much as possible is key. End it as fast as possible.
You have nothing but debt and you need to stop the meter running. A $4500 mortgage on a home that probably feels very empty at the moment is a huge nut to crack. You won't get that child support payment reduced if you keep showing you are able to pay it.
So, you are in very murky water and you need someone to navigate. Take the next wad of cash you can get and get to a CPA/tax attorney. This is one person with two degrees, certified accountant and law specializing in tax law. Drop the entire pile of financial junk into this person's lap. They, on your behalf, can go for an "offer in compromise" with the IRS and you will likely get it. If the missus pulled an IRS stunt like you say, there should be payroll check proof of it, and while you are supposed to read your tax docs before you sign them, if she prepared them (with fraudulent statements), as her spouse you had a reasonable basis to trust what she presented to you, which can justifiably put you under "the innocent spouse" rule. A bankruptcy can also be handled by the same if it comes to that.
Close the doors, load the truck and take the first viable job offer. Put all your energy towards your new job and new life. Let the old one fade away (but for your daughter). The very best way to get even is to move on and live well. Drives 'em crazy!
From contributor M:
You get that book on the shelves and I'm first in line to get everyone a copy for Christmas. Vindictive was probably a bit much, but the point is still to stay out of court and keep creditors (including your ex) at bay as long as you can. You'll land with your feet firmly planted when it's all over - even though that may seem like a while.
And I couldn't agree more on getting a CPA/tax attorney ASAP. They can be worth their weight in gold in these kinds of situations. Someone else mentioned stockpiling cash, and it's never a bad idea. You'll need something to get you through.
On a "looking to the future" note, don't expect your ex to ever change. My husband's ex still thinks that everything the company makes (even though he killed his sole prop and came on board with my corp) should be counted for her child support... and that court ordered visitation means when and if she feels like letting us see his daughter... Here's to hoping your ex is at least a tad more reasonable.
As for bankruptcy, if you feel you need to do it, with the lack of funds you've got right now, I'd suggest checking out LegalZoom - they're legit, and it's a combo of online forms and questionnaires and lawyers who specialize in what you need - and they'll work with you for payment plans and the like. Not to mention, they'll give you an initial consult and advise you on a) whether bankruptcy's necessary and b) whether you should consider chapter 7 or 13. Effectively everything your local lawyer would charge you for in the initial meeting. If nothing else, it'll give you a professional opinion as to what you need to do.
From contributor K:
While there are always two sides to a story, your side certainly paints a dismal picture. A low cost option to check into is a legal plan like www.prepaidlegal.com (or someone else). For a small monthly fee ($12-$20), they are set up to answer your questions with lawyers specializing in the area of interest. If you request a one-on-one consult, I believe the first one is free, and then if you decide to use them, you get a better rate based on the plan.
You can ask questions on many of these issues and get a response from a lawyer specializing in each area (one for divorce, one for IRS, one for debt forbearance, one for bankruptcy if it comes to that). At least you will have legal opinions in addition to anything we can offer.
IRS - I agree you can probably get whatever you owe reduced.
From what you've posted (I'm sure there's more, there always is), you have three major challenges... divorce, possible bankruptcy/business dissolution, establishing a new life.
But no matter what the issue is, map it out and attack it. Otherwise, just letting it run all over you will just wear you down and make it drag itself out. Once you've mapped it out and put it on paper, do what you can do, but make sure you are doing something. Wallowing in negativity is a battery-drainer. Place these lists on your fridge, and as you attack each line, cross it off and with each one you cross off, you begin to see that life indeed moves on, and it is something you can handle and overcome.
The less negativity (not reality - keep it real) your daughter is exposed to in your dealing with your wife, the better. As much as this hurts you, your wife is still your daughter's mother, and you will still have interaction with her the rest of your life in one form or another. Just remember that she spends more time with her mother and how you deal with your wife will speak volumes to her, one way or another.
Ask for help where you need it, advice when necessary, be honest with yourself, and you will come out of it.
I want to echo the thought about dropping the guilt. I agree, it's useless energy - people go through all sorts of challenges everyday. You didn't plan to be in your situation, but you can plan to get out of it. It happened, so deal with it honorably and the best you can and move on. This too shall pass.
From contributor T:
Don't let this crucify who you are. Don't let it change your spirit and loving nature. There is a new and better life waiting for you somewhere on the other side of this mess. Keep yourself intact and go find it or let it find you. When you stay true to yourself, your core being, you'll soon see the world can still be your oyster.
From contributor M:
My husband's got an airtight pre-nup (I should know, I had my lawyers draw it up) that entitles us to a 50/50 split if anything does go wrong - and yes, that does include debt (woman's gotta cover her tail too, ya know). On the other hand, I may love the man, and he may be better with wood than I'll ever be - but he's got zero ownership in my business. As far as that goes, I hit business mode - and he can work here as long as he wants - and we're all the better for it, but I'm not risking my livelihood over anyone (for many of the same reasons we've all talked about).
From contributor X:
Hang on to your tools. It's far easier to put them in storage than it is to replace them when the time arises. Once you have been bitten by the woodworking bug of independence, you will surely go back to it. I have seen too many woodworkers go through what you describe. Learning lesson to us all. Once you get your boat secured and docked, life shall again seem worthwhile. Confusion reigns first, just takes time to sort it all out. Would be nice if you could keep your shop intact since a lot of time and money went into setting it up in the first place. I keep thinking of unfinished chests of drawers to make and resell. Cheap ones that are simple to do. But what do I know?
From contributor N:
Three years ago (September '05), our family business fell over, when I was 24. I lost 50k cash that I had paying off "urgent" debts, then lost my leased truck which only had two payments left. I was able to grab a basic set of power tools, but lost everything else. I have not done a formal trade but just picked up stuff on the job. I sat around till February 06, then started doing hardwood flooring installs as a sub to a few shops. By the end of 06 I was doing 100k contracts direct to commercial builders. By June 07 I had landed a 750k contract and my staff went from one junior in 06 to 25 carpenters in 07. In 08 we have completed a 1.1million job plus heaps of others. We are currently down to last two tenders on two jobs, one worth 1 million, and the other 3 million. Both are ready to start.
Donít give up hope. I think I may have pulled a rabbit out of a hat, but I was making good money as a sub installing wood floors. Now I am doing alright, but itís a different level and I am turning over more than our family business ever did. I bought a $1500 truck after working out of an old sedan when I first started. Now I have a new truck which I paid cash for and also bought a new Merc cash. I know that no matter what happens, I can install hardwood for others and do alright. Sometimes change is hard to make, but if forced to change, it can be for the best.
From contributor B:
Hey contributor M, what's in Alamo, Ga? Except maybe a lot of onions...
From contributor M:
Land's cheap, and it evens up my freight costs - it was hard to hit the coast, Florida, Atlanta, and up into the mountain homes from right inside Atlanta. This way, I managed to buy land and build a very nice-sized shop for less than what I used to pay in shop rent. But yeah, we have lots of onions around... Why, you want some?
From contributor V:
Sheesh, if you are in the woodworking business long enough, you will find yourselves in this young man's shoes. Several things stand out. First is that you are living in a high overhead location that I doubt you could afford while digging out of this. I'd do as the others have suggested - find a new state to start over, preferably one with a housing market that wasn't in the bubble.
Secondly, do find a job - just that, a job. Low pay is your friend right now, especially with a shop that will grow your skills instead of an immediate high dollar job. With the economy in the tank in your area, and more of the same in other areas, you can justify taking a lower paying position as the best you can get, which lowers your ability to pay high child support and IRS payments.
The child support is the nightmare, but if you ever stand a chance to lower it, it is now. I went though 15 years of battling with my ex, was paying over three times the state limit of child support per month, finally got a decent attorney near the end and a decent judge that set things right. Right now, you are in a position where the ex can claim anything, and earning a paycheck ends all that.
The IRS isn't likely to want to lower your payments, but they will take what they can get with a bankruptcy. If you already have a payment plan set up, good luck getting that modified without a bankruptcy. These people just want the case off their desk and their boss off their butt.
Do hang on to your small tools, which most states will exempt from bankruptcy as "tools of your trade." A few thousand in tools won't be enough to cause problems with storage, but after the child support, IRS, and bankruptcy processes have stabilized, then start working your tail off with side jobs so you can get back on your feet.
One thing to consider is putting lots of miles between the ex and yourself. You aren't going to win any battles till the child grows up and realizes what dear old mom is like, so stay out of the battle and make the visitation quality time. Better six weeks in the summer than constant conflict all year long.
Frigging tough spot you are in, but many of us have been there. No shame in any of this, we are a capitalistic system and have a safety net called bankruptcy, so use it and keep your head high. The only one you need to keep faith with is your child, so do whatever is in your best interest with the rest.
Next time, here is how I have survived in the wood industry all these years. Don't borrow money, no house payment (get a fixer-upper and put sweat equity into it), no vehicle payments, charge deposits on all jobs and have a payment schedule that keeps you out of trouble. Advertise, home and garden shows, something, but get away from working for contractors. Quick volume, but it also evaporates quickly and doesn't pay that well compared to remodels where you are dealing directly with the homeowners. Good luck.
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