The way I see it he has the following two strategic options at this stage:
Take Control -
Deal with it like a man and accept that sometimes work pays
- He contacts the creditor, explains he has a highly valuable asset with a large amount of equity
- He offers to allow creditor to attach a lien to it in exchange for delaying foreclosure for a short, set period of time
- He sells the condo, pays off the WA lender mortgage, pays off the CT lender mortgage, and walks away with at least $125K in his pocket because if he declares bankruptcy he will get that much so he can negotiate to get that much or more to quickly pay the creditor with no fuss and reduced legal expenses
- He pays off all his credit card debt and still has like $25-50K in the bank
- He gets to continue making $9,000 per month
- He is no longer spending $1500 on a CT condo he doesn't live in
- He is no longer spending a couple thousand dollars on old credit card debt
- He saves up money and puts it into retirement savings and future home purchase savings
- He moves into some one or two bedroom apartment
- He buys a modest home with his home purchase savings once the local housing market calms down
His credit score goes through the roof as he has extensive credit history, now no debt, and no foreclosure on his record.
No Strategy -
Hope it goes away on its own like everything else in his life
- Creditor wins lawsuit, gets like $105K as mortgage principal and interest and like $15K attorney's and other fees
- Creditor converts judgement to Washington and begins attaching it to his stuff (lien on the condo, emptying bank accounts, redirecting payments, etc)
- He talks to a lawyer because he's unable to pay his bills, condo, car, or old debt
- Lawyer advises him that he now has the following two options that he should utilize in tandem
- Negotiate lower monthly garnishments
- Incorporate and employ himself to benefit from wage garnishment protection
- Declare bankruptcy to give himself enough money each month to pay his bills, some housing, and some transportation
The time for negotiation has probably passed at this point in No Strategy.
If he incorporates his business the creditor is likely to take control of his stock and become a shareholder, but if Kat legitimately invested money into the company she could remain a majority shareholder to DSP and therefore the creditor. I think that would be an acceptable method of maintaining control. If the creditor does gain majority control, it will be unlikely to dissolve or sell the company because it has no real cash value; it's value is in its ongoing operation. The creditor will be more likely to replace him as a member of the board of directors and as President. If they do this they can vote to begin compensating him with dividends instead of wages to bypass wage garnishment protection. If they don't replace him as President and take away his authority to spend the company's money he could just spend the company's money until there's nothing left to distribute in a dividend.
If his business continues to pay him only in wages the creditor will only be able to garnish the income his newly formed separate business entity gives to him as wages and not the income the business itself is being given by others; it's his own debt, not the business'. The creditor would be limited to garnishing 25% of his wages after some mandatory deductions. If he declares bankruptcy the trustee can only take and redistribute money being given to him by the business and not money being given to the business itself.
Bankruptcy will have obvious benefits to both parties. It will stop all efforts by creditors (plural) to get money from DSP's accounts, payers, etc. It will also require DSP to begin adhering to a strict budget and give the rest of his income to the trustee to distribute among his credits according to the law and any court instructions. It looks like he has equity that very much exceeds the exemptions, so it will require DSP to sell his condo and his car and find alternative housing and transportation. He will get the first $125K after the original WA lender is paid the mortgage balance and his creditors will get the rest. He can use that money to make initial payments on a home and a car that is below the exemption; if he doesn't spend it he will lose it to the same bankruptcy trustee a while later, I don't know how much of a grace period he has.
His credit score is tanked and he has to adhere to this payment plan for at least 3-5 years, possibly more if he files under Chapter 11 instead of 13 and his creditors all vote to extend it. I don't think filing under Chapter 11 is a good move for him for that reason alone.
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I'd like feedback on what people think of these two strategies.
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By request another option follows:
Do Nothing -
Stick your head in the sand
- Creditor wins lawsuit, gets like $105K as mortgage principal and interest and like $15K attorney's and other fees
- Creditor converts judgement to Washington and begins attaching it to his stuff (lien on the condo, emptying bank accounts, redirecting payments, etc)
- He's unable to pay his bills, condo, car, or old debt
- He gets foreclosed on a second time, this time in WA
- He moves into some one or two bedroom apartment
- The WA second condo is sold and he gets a bunch of money after the sale and part of it gets seized to pay off the CT debt
- He gets to continue making $9,000 per month
- He is no longer spending $1500 on a CT condo he doesn't live in
- He is still spending a couple thousand dollars on old credit card debt
- He starts spending money like a stupid person again
- He never buys a home again out of shame, confusion, and fear
His credit score is tanked and he has nothing to show for it.
GRAB THE POPCORN 
