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K is for Keeping your business in bankruptcy

by Dorota Trzeciecka on November 11th, 2011

Not that many  bankruptcy topics come to mind beginning with the letter K.  So, when Jay Fleischman said in his post K is for Keys for your business, which you  have to hand over to the trustee when you file bankruptcy, I thought back to the Chapter 7 case that I have just wrapped up for a client.  It was a personal bankruptcy for a client, who also operated a small service-oriented business, a corporation. Client’s debts were primarily business debts, and they  far exceeded the value of the business assets.  Consequently,  the corporation had little or no value, and the trustee had no interest in taking over  the business that was not very profitable.  It was also of great benefit to the client that the nature of the business was such that he was the company’s biggest asset.  The trustee could not have easily assessed and sell the business, because without my client the business was worthless.  So, in that case, the cards were stacked in my client’s favor, and keeping the business became  a possibility.

But, before we filed the case, I had to prepare the client for the possibility that he may lose the business.   Generally speaking, business entities are not part of personal bankruptcy cases.  If , however, you operate a business as a sole proprietor, corporation, or limited liability company, and that business can potentially generate enough income to pay your creditors, the trustee can extend his hand out for the Keyes to your business, literally.  The trustee can come in and temporarily close your business to assess the value of your assets and inventory, and the exemptions that you had claimed.  The trustee can step into your shoes, vote your shares to close down your business, and sell the assets that you cannot exempt.  And, although these may seem like extreme measures, they’re real possibilities of which you need to be aware, if you’re a business owner filing for personal bankruptcy.