Business Loan...

[Mellybug]

I'm writing on behalf of my boyfriend (he's too embarrased to write himself).

He and his ex-girlfriend were together almost 10 years, and have two wonderful children together. About 2-3 years back, she wanted a loan to start up a business, and together they went to the bank. They received the loan, ($20,000), and he put his house as security. The loan is in both names.

Naturally, they split up, but she was still making payments. Until she found out about he and I dating, then decided she wasn't going to. She defaulted on the loan, and my boyfriend was forced to refinance in order to save his house (it's been in his family for 30+ years). The loan officer never took her name off of it, though.

The ex had a change of heart a year later, and said she'd take over the payments again. Now, she keeps saying things like, "Do this or I won't pay the loan," or "Tell your girlfriend to do this or I won't pay the loan." She managed to actually split us up, but when we got back together, she said "Have fun paying off my loan!"

My question is this:

Is there any legal recourse to get her to pay the bill? Or go after her for the amount that we HAVE paid? Even if we cut our losses and she has to take responsibility for the bill, we're happy with that.

We can not afford the extra $ every month, and it's no small chunk of change.

We live in NY.

Mellybug

[socrateaser]

Questions...answer as simply as possible and without elaboration):

1. Are there any other written agreements between your bf and his exgf concerning this business that she started, or any third-party witnesses who can testify of their own personal knowledge, as to their understanding of any agreement.

2. What happened to the business?

3. Do you have or does the exgf have records of how the money was spent?

4. How many years ago was the loan made?

5. If the business is no longer existent, when did its existence cease?

6. Was the business legally incorporated?

7. Your facts state that the "loan officer never took her name off of 'it'." What is "it?"

8. When was the last time that the exgf made a payment on the loan?

9. How much has the exgf paid, exactly?

10. How much is left owing on the note?

11. What is the interest rate?

12. What is the loan term?

13. Does exgf have any real estate or other valuable assets (stocks, bonds, paid off car, savings, etc.)?

14. Is exgf employed or self-employed?

15. How much does exgf earn?

16. Did bf get anything of monetary value from this business (NOT including the affection of his exgf).

[Mellybug]

Answers:

1. There are third party witnesses. Nothing in writing other than the application for the loan (they are both borrowers).

2. She filed Chapter 13 last year on the business, but is still active.

3. My boyfriend has no records of how the money was spent, however, there are records in existance.

4. The loan was made 5 years ago.

5. The business still exists.

6. The business is an H&R Block franchise, so I am unsure of the answer as to whether or not it is legally incorporated.

7. "It" refers to the names of the borrowers of the money.

8. The last time she made a payment was in February, and that was the only payment since May the previous year.  

9. She has paid approxmiately $3420 (6 months worth).

10. There is $19,000+ left (of a total of $22,880.13).

11. The interest rate was 9.75%, after refinancing it is 11.7%.

12. The loan term is 83 months.

13. She has NO real estate, she has a junker car that is paid off (by my boyfriend), and minimal savings (unless her money from her business is in her savings account - not sure).

14. During tax season she is self-employed. After tax season she tries to not work as long as possible, then goes on Emergency Services because my boyfriend will have to pay that back.

15. During tax season her business earns $80-85K gross.

16. The only thing my boyfriend has received from the business is that she paid him approximately $3,000 for bills he paid of hers to float her until tax season started again. The money technically came from her business.

Thanks for your help, if you are able.

Mellybug

[socrateaser]

1. Did exgf list bf as a creditor in the Chapter 13 petition?

[Mellybug]

I believe that she did list him, because he got a notice, but there was nothing in there stating what amount he was owed and nothing in the scheduled payments stating him at all.

[socrateaser]

>I believe that she did list him, because he got a notice, but
>there was nothing in there stating what amount he was owed and
>nothing in the scheduled payments stating him at all.

OK, this is a really complicated one.

Breach of Contract. A contract requires a minimum of an agreement between parties. Your facts show that both DH and exgf signed on the loan, so there is a written agreement that both parties are jointly and severally liable for the debt.

There is no express agreement as to how each party is to service the debt, but if you can show that substantially all of the money was used to finance a business that is the sole property of the exgf, that may be sufficient proof that the purpose of the loan was to benefit only one person, and that there must have been a verbal agreement that the gf would be responsible for the payments.

As exgf has failed to pay, she is in breach of the terms of this agreement, therefore you are entitled to damages to give you the benefit of the bargain, i.e., your payments on the loan. In addition, you would be entitled to damages that are the direct result of the breach and are reasonably foreseeable at the time of the contract's making.

Quasi Contract. This is an action brought to prevent the unjust enrichment of one party at the expense of another, even though no contract between the parties was ever intended.

Here, the facts are the same as with the breach above, however, you don't have to prove that there was a contract, only that the exgf was unjustly enriched by the proceeds of the loan, and that this was at your expense, because you are stuck with the payments.

Damages would be the same as with the breach.

Bankruptcy. This is used to relieve a legal person of their personal obligation to pay financial debts to others (absent some public policy exception, such as child support or a student loan, etc.). If the exgf bankrupted the business, and that business is a corporation, but she borrowed the money under here own name personally, then she would be afforded no protection via the bankruptcy, because the corporation is a separate legal person from the exgf.

However, your facts state that the exgf has no material assets, other than the business, therefore it would be relatively trivial for her to file personal bankruptcy after you sued her for repayment of the loan, and that would relieve her of the responsibility of paying.

Equitable Lien/Constructive Trust

An equitable lien is a right to a collateral interest in valuable property of the debtor, in order to secure a debt. A constructive trust is the assignment of an ownership interest in the debtor's valueable property. Here, you would be asking the court to give you (1) a right to collect against the business revenues stream (bond), (2) a right to an ownership in the business (stock) or some valuable tangible asset, or (3) the right to the franchise itself, because you paid for it.

Unfortunately, the U.S. Bankruptcy Trustee, i.e., the person who holds the exgf's current rights to the corporation while it is in bankruptcy, has the right to "avoid" all of these legal remedies, because the corporation is already in bankrupcy and you didn't file a claim or begin your suit prior to that bankruptcy filing. However, to the extent that the exgf was permitted by the trustee to take income/assets from the corporation, you could get a lien against the income/assets.

Based on your facts, it appears that you will have a great deal of difficulty collecting on this debt, unless you can successfully make a claim with the bankruptcy court at this late date.

You need to contact a bankruptcy attorney and discuss this issue, because if you cannot get a claim on the business, then you may sue and you may win, but you won't collect.

Of course, you can still sue her and get a judgment in your favor, and then hope that she acquires some valuable assets during the next 10 years, at which point you can enforce the judgment and get your money. But, right at the present time, you don't have much leverage, because of the corporate bankruptcy combined with the exgf's lack of any personal wealth.

[Mellybug]

Thank you so very much for your VERY helpful input.

I have read your post to my boyfriend, and we will now discuss the best way to go about this.

It is my belief that the thought alone that we will go through this much trouble will scare her enough to start making payments.

Once again - I owe ya, Man!

If you're ever in the Finger Lakes region of New York, look us up! We'll treat you to a GREAT dinner!

Mellybug