Would nonprofit corporation be affected by personal bankruptcy?

[brokenomore]

I am the director of a nonprofit corporation. We currently have no assets, but are working on a project and there will soon be some substantial donations to purchase needed equipment.

My bankruptcy attorney says that the trustee can step into my shoes and force the sale of assets for the sake of the creditors.

However I'm getting conflicting information about this. Another line of thought is that those assets are for the corporation to do their good deeds and that I cannot ethically or legally sell everything and pocket the money, so why should the trustee be able to do that?

Anyone have any insights about nonprofit corporations in relation to directors filing personal bankruptcy?

[despritfreya]

You should consult with other attnys as it sounds like the attny you spoke to does not handle many cases where a debtor has an interest in an entity.

You state you are a director. Are you a shareholder? If a shareholder, what is your percentage interest? What does the shareholder agreement state? The shareholder agreement should indicate what you can and cannot do.

The Trustee steps into your shoes and takes on all rights you have, nothing more, nothing less. Unless you have 100% control over the entity I tend to doubt the Trustee can force anything other than what is allowed by the shareholder agreement. If your interest in the non-profit is just that of a director, there is nothing to even think about - but don't forget to disclose your "directorship" on question 18 of the SOFA.

Edt. . . If just a director and you are really worried about it, maybe you should "resign" before filing????

Des.

[brokenomore]

I have to do some more research about this and will probably be consulting an attorney, but I don't believe that a nonprofit has shareholders. As the president, I'm the director who could make all the decisions, but I couldn't decide to liquidate the assets (if we had any) and have a check sent to me personally. That would be fraud. A director doesn't own any of the assets.

[despritfreya]

will probably be consulting an attorney, but I don't believe that a nonprofit has shareholders. . .

A very interesting point and since I have never worked with a non-profit, I have no clue.

As the president, I'm the director who could make all the decisions, but I couldn't decide to liquidate the assets. . . A director doesn't own any of the assets.

Then I think that answers the question. If you cannot liquidate the entity's assets, neither could a Bk Trustee. My gut tells me it is no big deal but you are wise to seek out other "professional" opinions.

Des.

[Flamingo]

Why there is concern about this is because as the President and a Director of this non-profit corporation, you have access to any donations/funds received into the corporation. Consult with a BK attorney who has experience in corporate/business BK's along with personal BK's (i.e., in your situation) to get a better handle on this.

[brokenomore]

I don't ethically have access to donations. The funds can be spent on things that are needed or legitimate projects, but I can't cut myself a check for any amount for no good reason, so I would presume that a trustee couldn't either. Yes, I will be getting legal advice, but so far my BK attorney seems to think the trustee could wipe out the nonprofit, and I think he's mistaken about that.

[HHM]

Strictly speaking, your bankruptcy trustee cannot do squat with the non-profit.

But that statement assumes it is a "valid" non-profit and has been operated as such.

Since non-profits do not have owners, just directors, there is no "asset" interest for the trustee to assume. So the trustee does not "step into" your shoes.

But what a trustee may do, depending on circumstances, is investigate the validity of the non-profit and see if he can unwind it.

[brokenomore]

Thank HHM. What you say makes sense and maybe my BK attorney doesn't understand how nonprofits are constructed. It is a legitimate nonprofit, and has so far not collected a dime of donations. But recently we began a project that will require donations, and I just want to make sure that donations and assets are not at risk because of my own personal financial problems.

Until I file for bankruptcy, I have a couple of substantial judgments against me, and there is always the danger that my checking account could be garnished (so I try to keep the balance low), but I presume the same principle applies to the nonprofit checking account and that those who have the judgments could not garnish the nonprofit account.