Bankruptcy Alternatives

[HCBailly]

Question: What alternatives are there to bankruptcy?

First, I’d like to thank everyone here who has helped me with my carpet cleaning business. It has been very helpful in riding out this economy as long as I have been able to, when my industry has crashed, for the most part.

That said, I’m seriously considering the possibility of a bankruptcy, due to my steadily declining income. By my estimates, I would imagine that it will come some time this winter, when my business really slows down, if not sooner.

The problem is that my debts were based on the economy of two years ago. I was making so much money, it made sense to take on that amount of debt, because the ROI was there. Now, it is not.

My Debts
My biggest debt is my business loan used to purchase the business. That’s what is killing me. I managed to negotiate a loan modification, but that’s all I can do now. Also, there is my home, which I would downgrade, except that I now owe more than it is worth.

Possible Solutions
In a separate topic, I’ve discussed methods of increasing my income, and I will continue to pursue those methods, of course. This included various marketing techniques, looking for a part-time job, and renting out a room. However (and I mean no offense), the fact is that those efforts are not producing nearly enough results. My attorney had no other alternatives to suggest (he is a bankruptcy attorney), so I thought I would ask here.

1) Borrow more money.
Currently, I don’t have any credit card debt, nor do I have that much I could borrow anyway (only a couple thousand). I have a relative who is willing to give me some money to help tide me over. The problem with both of these alternatives is that they don’t solve the original problem: a lack of cashflow. Sure, it would help me get by for a month, but what about next month?

2) Somehow sell the home at a loss.
I mentioned selling my home earlier. Even if there were enough demand for someone to buy my home, it is worth less than what I owe, despite putting 20% down, less than 2 years ago. I heard that some of the big banks also recently dumped a bunch of foreclosures on the market that they were holding back for awhile.

I could try to short sale the house, but my attorney said that would practically be nearly as bad as a bankruptcy or foreclosure on my credit. Not to mention, I would have to pay income tax on the debt that was forgiven. Is it possible to borrow money some other way to pay the difference? For example, if my home were worth $155K, and I owe $170K, could I somehow borrow the $15K to pay off my mortgage, and still decrease my cashflow? That sounds far-fetched to me, but I thought I’d at least ask.

3) Somehow sell the business or pay off the loan.
I don’t think there’s anything I can do about my business loan, short of a bankruptcy. If I could sell the business, I would, but it’s not worth anything. I’ve been unable to build any amount of tangible value. The bank won’t negotiate with me anymore. Are there any other alternatives?

Thanks for your help.

 

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[yveskleinsky]

HC,

Get some roommates ASAP.

Also, what is the amount of your biz loan? ...Did you contact Realtors and property mgrs about setting up REGULAR cleanings? (Keyword is regular.) Don't wait for people to call you--kinda like the dentist. Most people know they should get their teeth cleaned every 6 months, but without an appt set up in advance we forget. I guarantee you if you start asking for the sale--telling them that you'd like to set them up for every 6 months or whatever, most people will.

 

[HCBailly]

I never went into detail about finding roommates, so I guess I can ask here.

I’ve had some people look at the room(s) that I have available for rent and could offer a very competitive price. From my observations, they seem to like the room, and some even said they were interested. However, all have ultimately backed out on their interest. Is there a better way that I could find potential roommates and close the deal? I’d hate to throw away money on expensive advertising.

Currently, my business loan is down to about $45K ($955/month after loan modification), out of the original $72.5K ($1465/month). Originally, my hope was to hold on long enough until I could use my home equity to pay it off; thus, increasing my net cashflow by the $1000/month that I need. However, I waited too long, and my equity is gone now.

As for maintenance cleanings, that is mostly what is keeping me alive right now. I just did some work for a property manager and a couple realtors last month, which saved my life. I think that’s the great reason why I’ve survived this far, while others have gone out of business. Five months ago, I introduced a basic maintenance program, in addition to my deluxe one that required more up front. My hope is that the two put together will get me through the winter. We’ll see.

 

[HCBailly]

Thanks for getting me thinking about renting a room again. This time, I'm making a broader search for tenants.

I talked to a few people about doing this and got some ideas that I didn't try before. They said to try places like craigslist or rental.com, so I'll post something up there.

One guy I talked to suggested renting the entire house, since I was already considering downgrading to an apartment. I said that the mortgage specifically stated that it must be owner-occupied, but he replied that I shouldn't worry about it. He said, now more than ever, banks aren't going to call me on that part of the note, as long as I'm making the payments, because it's far likelier for them to lose more than they would gain by doing so. That sounds logical to me, though I would want to think about it more first. What do you think?

Thanks for the discussion.

 

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[yveskleinsky]

Craigslist is huge. Try there for sure.

As far as your mortgage being okay with renters--my understanding is that when you BUY or REFI you need to state your intention for the property--meaning owner occ or rental. If you are living in a house owner occ and then turn it into a rental, it doesn' matter. ...We have several homes, and all of them were bought owner occ--as that's what they were at the time. Now they are rentals.

As far as carpet cleaning, can you expand your services to steam clean tile (floors, bathrooms) and air duct cleaning? ... I just had a guy come out here--I was roped in by the 4 rooms for $59 and he ended up leaving with about $600! He did all the tile, air ducts and the rest of the house. ...I would hit up banks that are taking in foreclosed properties as well as new owners. Perhaps you could give your cards to realtors or title compaies for part of a welcome package--and put some sort of coupon on the card. ...Perhaps the chamber of commerce too?

Hang in there. ...Perhaps you can also call some similar businesses--like house painters, counter top install people etc., and see if you guys can create a referral team and throw business back and forth to each other--and everyone makes like 10% or something off the referral.

 

[KyJoe]

You don't want to sit around. Make flyers advertising & pass them out whenever you are not working. Depending on where you live there is probably other things you can do as well for more income. (Just a side note, I don't think you will have to recapture the amount as income if you short sale. Years ago yes, but I think they are letting that one slide. Check with a accountant on that one).
1) get some room mates
2) make flyers for more bus
3) renegotiate your bus loan?
4) put house for sale? (don't do the room mate thing if you do this)
5) go deliver pizza, extra 1k a month or more in the evenings
6) cut any expense that you can

 

[Russ H]

you once said you watched TV/played video games/surfed the net at least 3-4 hrs/day.

If that's still the case, STOP doing this and get a side job.

3 hrs/day x 7 days/wk = 20+ hours/wk.

And if you're business is that slow, work 80-120 hours/wk in side jobs.

If you make $10/hr, for 100 hrs/wk, that's $1000/wk.

Use the max exemptions, and take that $2000-4000/mo towards paying off your debts at least until the busy season comes.

Me? I'd ramp up my business, or start a side business that ties in for off seasons (e.g. in Michigan, the landscape and pool guys all drove snow plows when winter came).

-Russ H.

 

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[HCBailly]

Yveskleinsky,

Out of curiosity, about that 4/$59 offer, did that include soap? Seriously. I’ve seen similar ads for ridiculously low priced carpet cleaning, but then in the fine print, they say something like “heavily soiled areas may require pretreater @ $0.25/sqftâ€. In other words, their actual price is about what I really charge up front, but they use a bait and switch tactic. You sound pleased with your experience, so maybe you were fortunate in finding a reputable company, but I’ve heard a lot of horror stories from clients I stole from them.

I’d say that the lowest price that I could ethically offer is 3 rooms for $99. After that, if I’m going to go any lower, I might as well offer $4.95/room and use bait and switch tactics, because that would be the only way I could beat someone else’s price.

As long as we’re talking about price, how can I determine what price I can afford to charge and still stay in business? The problem is that price in a service industry is rather arbitrary. Obviously, no one is going to pay more to clean than to replace, so there’s a logical ceiling. In the past, people seemed to be willing to pay about 10% of the replacement cost. However, that was based on the old economy and on the value of the carpet, not the lowest I can afford to survive on.

I know my expenses, however, the amount I need to charge per room would be dependent on the number of rooms I clean per month. Obviously, there’s no way I can know that in advance, nor can I predict how likely I am to upsell a client to make up for offering a loss leader price. I believe I have enough services to have plenty of room for upselling. Most people just aren’t willing to spend the money anymore, I’m afraid.

KyJoe,

Do you have suggestions on using fliers for increasing business? Over the past several months, I’ve been trying a 3 rooms for $99 offer just to get in the house. People seem to like the offer, but aren’t willing to spend. Using a price-based approach doesn’t seem to be any more effective than a health/educational-based approach.

I think I might create a separate topic to discuss renting rooms, since I have no experience in dealing with tenants.

Russ H,

I’m currently searching for part-time jobs, though I seem to be running into obstacles that my brother was facing. Obviously, I need to look for part-time jobs, because full-time jobs work during the day, which would conflict with my business and cannot offer more income than I’m making now, even as bad as business is going.

That said, I notice a significant difference in searching for part-time vs. full-time jobs. With a full-time job, I found it quite easy to find the person making the hiring decision. It then is quite easy to demonstrate my skill and charm to make the sell and get the job. However, with part-time jobs, it seems far more challenging to find the person making the hiring decision, let alone even have enough time to make a good sell. Plus, the ones that I have found seem to really be dragging their feet on the interview process.

I don’t mean to make excuses for myself. I just want to state the challenges I’ve faced so far to discuss how to overcome them. A couple friends have suggested some websites I could check out to search for part-time jobs. I’ve already scoured the local retail stores, newspaper ads, even restaurants, to no avail. I thought Walmart was hiring big-time, but apparently not.

Thanks again.