Other Debt Chain Reaction Debt Repayment Issue

[ejhansen71]

Jurisdiction

Illinois

Goal: I am looking for advice on what attorney specialty and/or service I should engage to help with this issue below

Facts:
1. I am a franchisee of a cleaning service in Illinois. I purchased in late 2022 and the business is not yet turning a profit. I used the ROBS funding so it is a C Corp that is owned by me 7 shares, my 401k 93 shares and fiance' who owns 6 shares
2. I also work a full time job as an I.T. manager making $160,000 per year
3. I pay child support of $1,300 per month
4. Our growth is 70% but it might be 6-9 months before we break even
5. I have lent the corporation (Shareholder loan to C-Corp incorporated in Illinois) $75,000 over the past year and have $185,000 in personal loans that have been used to help keep the business afloat. The $75,000 includes:
a. I cashed out the remainder of my 401k lending the balance to the c-corp
i. Because of the cashout - not ROBS - that was separate - I will owe a penalty to the IRS of $14,000.
b. I have borrowed $20,000 from my father and loaned to the business
6. I repay my loans by having the corporation pay me $3,500 per month and I am current on all loans as of today
7. My credit is maxed out, credit cards maxed out - there is no more money
8. I have a hospital bill of $6,000 (my deductible) too which is just icing on this crap cake.

Problem: I can not continue to pay myself back from my corporation and have any chance of reaching profitability before running out of money. If the business closes, it is certain bankruptcy. In fact - I have to pay the corporation $1000 a month plus turn over my bonus this year to give me enough time to turn a profit assuming the growth rate stays as is and so far - it has.

If I can hit profitability within 9 months, I will once again be able to pay myself back the $3,500 per month and continue paying the loans.

I have individually contacted the 6 lenders and asked for assistance. A few said no, the others gave me 60 - 90 days by pushing the payments to the back end of the loan.

I want to know my options. I will rule out 2:
1. Stop paying loans entirely
2. Sell the business - this one is just a matter of practicality. An unprofitable business could take 3 years to sell and the return would be paltry. It is far more likely the business would just close the doors. Either way - this is not a realistic option.

So this involves personal loans, a C corporation where I am the majority shareholder and being unable to make full payments toward the loans.

I pay $5,122 to these loans each month. Without the $3,500 payment from the c-corp and instead having to continue to loan the c-corp $1000 per month - it leaves each of the loans (6 total not including the IRS, a $6,000 hospital bill and the loan from my dad) a payment of $150 per month - nowhere near what is required.

Thank you for taking the time to read this. I am not asking for a solution to the problem on this forum. I am asking where should I start
Do I need an attorney? If so, what specialty?
A credit counseling service that can make the creditors accept $150 per month for 9 months? Normally this is not how these services work.
Is there an option I am not thinking of?

 

[Zigner]

You could drop the unprofitable business.

 

[ejhansen71]

If I drop the unprofitable business - then personal and corporate bankruptcy is certain. If I can stretch the runway to profitability, it is probable that I will turn a profit and be able to pay the loans. So I do understand the advice to "sell" or "close" but that actiuon would DEFINITELY result in disaster while supporting the business gives a chance for success and recovery - even if it's a 60/40 chance.

 

[welkin]

If I drop the unprofitable business - then personal and corporate bankruptcy is certain. If I can stretch the runway to profitability, it is probable that I will turn a profit and be able to pay the loans. So I do understand the advice to "sell" or "close" but that actiuon would DEFINITELY result in disaster while supporting the business gives a chance for success and recovery - even if it's a 60/40 chance.

The well you dug is very deep indeed and I can only assume that your motivation to buy a cleaning franchise, of all things, was wishful thinking and not a well thought out business plan. When a boat starts to take on water you bail or go down with the boat. Your boat is about to sink.

The type of advice you need is (your original question) from a tax attorney that can also handle bankruptcies. Back to the sinking boat.

You say that you think that the business will be profitable in 6-9 months and you're looking for a way to keep it afloat for that period of time. So far, it appears that you have been incorrect in your predictions.

The only way that I see you surviving is to find an infusion of cash. And the only way I see that happening, since you have maxed out your ability to borrow, is to sell an interest in your franchise (at fire-sale prices) or hit up dad for another loan if he can afford it.

A quote from the IRS website:

ROBS Project findings

New business failures

Results from the ROBS Project indicated that, although there were some success stories, most ROBS businesses either failed or were on the road to failure with high rates of bankruptcy (business and personal), liens (business and personal), and corporate dissolutions by individual Secretaries of State. Some of the individuals who started ROBS plans lost not only the retirement assets they accumulated over many years, but also their business. Much of the retirement savings invested in their unsuccessful ROBS plan was depleted or 'lost,' in many cases even before they had begun to offer their product or service to the public. In some cases, large recurring promoter fees or legal issues were a factor.

Good luck

 

[ejhansen71]

I appreciate the info and you taking the time to respond. Thank you!