My fianc�e and I bought a business in Illinois in June of 07. In June of 09, I turned over the operations and management to my brother. In May of 10, it was discovered that my brother was embezzling money from the company. Between June of 09 and May of 10 when we closed the business, my brother had taken more than $85,000. In order to do this he stopped paying all debts of the company as well as not paying withholding taxes.
Now between the times of his control, my fianc�e and I remained silent owners. Meaning we had nothing to do with the day to day operations or management. We simply owned the company. The only input we had was that I still signed the paychecks.
We made this arrangement based on the belief, through a verbal agreement that my brother was taking over the company with the intent to buy us out.
I have text messages and emails to show that we had this agreement and to show that he gave me indications that the taxes were being paid.
My brother is in federal jail for this crime and for stealing from another business before he got to ours. He is looking at 10 years. He has no assets, so we can get anything from him. He stole over a million dollars, I am being told.
The situation now is, and this is where we need help. We�ve had to close the business and are now filing for Personal Bankruptcy to take care of over $400,000 in business debt. Our accountant had to recreate our books from our banking records during the time my brother had the business. Beyond the $400,000 that we owe in loans and miscellaneous, we owe the state of Wisconsin, Illinois, and the Federal Government roughly $25,000 for withholding taxes not paid.
Is there any way out of this debt to the states and IRS? Does that fact that we were victims of a crime help us in anyway? We are basically broke and now without good credit. My fianc�e has been out of work for two years and though I make a good salary, I am barely covering our expenses now.
Is there anything positive that can happen here? How can I afford an attorney, if I don�t have enough to pay the state and IRS?
I am open for some suggestions.
If I left something out of my story, or you have questions that might help clarify things further, please ask.
Thanks for your input.
Mike
1 Answer from Attorneys
Don't assume you can't afford a bankruptcy attorney until you talk to at least 3. Attorney fees in bankruptcy come off the top, so to speak. A decent bankruptcy attorney can help with 2 things: 1) working out an arrangement with the IRS and DOR for taxes, including a possible compromise (beware there are tax consequences for that) and 2) filing an "adversarial claim" against your relative for the amount he stole (it will be most likely held in limbo during incarceration) that, assuming it is uncollectible, you may be able to write off against future income as a business bad debt that could have some positive effect on your tax picture. If the company had what is called "Directors & Officers" Liability insurance, there may also be a valid claim for the amounts stolen, but again an attorney would have to review the policy, if any, since intentional acts are often excluded. But it's worth having it checked out. Like any insurance, then the insurance company pays off, takes your claim off your hands and sues the relative -- if they get anything up to the amount they pay you plus costs and expenses of the lawsuit, it's theirs, and if they recover any MORE than that, potentially it's yours.
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