Lularoe in Bankruptcy: Multi-Level Marketing Schemes in Chapter 7 & Chapter 13
Lularoe Debt in Bankruptcy: When the Business You Enter Isn’t Designed to Make YOU Money
According to Buzzfeed and other sources, Lularoe “consultants” have been turning to bankruptcy in order to reject the sales contracts that have required them to purchase, at their own expense, clothing inventory for a great deal of money while, at the same time, the company revised its inventory return policy to greatly restrain consultants from returning the clothing to get any money back when it doesn’t sell.
This has left Lularoe sales persons with large amounts of clothing on hand that they can’t sell and can’t return, and out of thousands of dollars in cash expended on the clothing—sometimes at the expense of keeping a mortgage or car payment current.
Yes, the company allegedly encouraged sellers to open up new credit cards, stop paying bills, and even pawn their belongings in order to purchase new clothing inventory.
There are allegedly significant start-up costs and requirements for the purchase of initial inventory amounts that are quite prohibitive, as well. Meaning that, just to stick your toe in the Lularoe water, you have already invested $5,000-$6,000 according to the sources linked to above.
In short, like most “multi-level marketing” businesses, the actual business structure is not the direct sale of product to end-users (those who wear the clothing), it is the sale of the inventory to the person selling the clothing.
In other words, the customer is you.
So what happens when you can’t afford to be that customer any longer?
Lularoe Debt in Bankruptcy: Easily Dischargeable in Chapter 7 or 13
The good news is that, if there is an increase underway in people filing bankruptcy to escape Lularoe or other multi-level marketing schemes, there is a reason why: Chapter 7 and Chapter 13 bankruptcy is very effective at not just discharging debt obligations but also allowing filers to reject or legally break contracts or executory agreements.
The only questionable issues are the same that confront anyone considering a personal bankruptcy filing, namely: are you eligible for Chapter 7 bankruptcy by way of your income, is Chapter 13 bankruptcy worth it on a dollar-for-dollar value basis if not, and will you lose any property if you file a Chapter 7?
Lularoe Debt in Bankruptcy: What Happens to the Inventory?
As implied above, a primary question in Chapter 7 bankruptcy in particular is the protection of assets from a person called the Chapter 7 Trustee who is assigned to your case by the Bankruptcy Court.
The Trustee’s job is to take your property, if it is worth more in fair-market (“garage sale”) value than can be protected under law, in order to sell that property off and return the proceeds to your creditors, who otherwise receive nothing on the debts that are discharged in Chapter 7. (To read more about the liquidation of assets in Chapter 7 bankruptcy, read here.)
Whatever Lularoe inventory you may have, like all of your assets and property, needs to be properly valued and disclosed in your bankruptcy petition. If it is worth more than the protection available under the US Bankruptcy Code for that type of property, the Chapter 7 Trustee may seize it from you and auction it off.
However, to-date, at any rate, the Hilla Law Firm has not encountered a Chapter 7 Trustee interested in taking Lularoe clothing. (This could always change, depending on the amount of clothing inventory and the Chapter 7 Trustee in question.)
Assets are treated differently in Chapter 13 bankruptcy, in which liquidation of assets does not occur. Read more about Chapter 13 bankruptcy and assets and property here.
Lularoe Debt in Bankruptcy: The Bottom Line
The bottom line regarding Lularoe debt is that, if you have found that your sales business is costing you more than it is earning, you have a way out. It is not great news generally that Lularoe consultants are turning to the bankruptcy option, but there is a reason that this seems to be the case.
The reason is that bankruptcy works.
If you are a Michigan resident and would like to explore your options for a Chapter 7 or Chapter 13 bankruptcy with an experienced Michigan bankruptcy attorney, please contact us at (866) 674-2317 or click the button below to schedule a free, initial consultation.
If you enjoyed reading “Can I Discharge my Lularoe Debt in Bankruptcy?,” please browse our other articles on our main Michigan Bankruptcy Blog.Tags: chapter 13, chapter 7, Chapter 7 Trustee, debts and bankruptcy, Livonia bankruptcy attorneys, Lularoe, Michigan bankruptcy attorney, personal property in bankruptcy
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