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Business debt and asset questions on personal Chapter 7 filing?

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  • Business debt and asset questions on personal Chapter 7 filing?

    Not sure if anyone has experienced this but as an overview- have been self employed for the past 8 years. The company has been operated as an LLC with 2 partners. I have very little personal debt from credit cards and such however due to a recent downturn in business my company has not had enough revenue to cover operating costs. This has created lawsuits, judgements and threats of lawsuits from business clients and vendors. Even though it is an LLC, I am being sued personally and do not have the money to fight this. I understand the Official Form 107 and have filled it out 100% truthful however the questions are almost completely based on answering them from a personal point of view. For instance, I have not personally transferred or sold any property/assets in the past 2 years however through my business LLC we have sold, transferred millions of dollars of property (including equipment and vehicles) and have collected millions in revenue. I know I have to provide 6 months of both business and personal bank statements. So my two questions-
    1. Can a bankruptcy attorney look at a vehicle that was owned by the LLC and sold by the LLC 6 months to a year ago and try and unwind that? The money collected was put back into the account and used to pay standard operating expenses.
    2. My business is technically still open and I can still collect revenue in an attempt to earn profit to pay for equipment that my customers have purchased. If I accept payment, use that payment to purchase equipment from a vendor and then ship that equipment to one of my customers, is this considered a "preferential creditor" payment. Again, its from the business and not myself.

    Any help would be great..

  • #2
    First, I hope that you hire an attorney for this complex bankruptcy. Second, an LLC is not a partnership (as they are treated separately). The members are protected so long as they did not commingle the assets of the LLC with personal property and/or the members did not pledge a personal guarantee. What I write below is based on you getting an attorney for you and/or the business.

    I must also mention that an LLC is an entirely separate legal entity than a person (or a member). Short of a member pledging a personal guarantee, lawsuits, credit issues and other concerns of the LLC should never reach any member.

    Originally posted by jasonkim2018 View Post
    1. Can a bankruptcy attorney look at a vehicle that was owned by the LLC and sold by the LLC 6 months to a year ago and try and unwind that? The money collected was put back into the account and used to pay standard operating expenses.
    If the LLC maintained proper books, the purchase of the vehicle should be on its books as well as the sale. I don't know how a bankruptcy attorney unwind that sale. Now, if you're asking if the Trustee could unwind the sale it really truly depends on too many things. When you file bankruptcy, the Trustee gets to step into your shoes as if they were you and they could do whatever you would have the power to do under your Operating Agreement for the LLC. I don't know how a person can personally undo a sale. Usually the Trustee is looking for fraud so unless the sale was to an insider or some other fraudulent conveyance, the Trustee could do nothing.

    If the business is filing as well, that is a separate bankruptcy entirely.

    Originally posted by jasonkim2018 View Post
    2. My business is technically still open and I can still collect revenue in an attempt to earn profit to pay for equipment that my customers have purchased. If I accept payment, use that payment to purchase equipment from a vendor and then ship that equipment to one of my customers, is this considered a "preferential creditor" payment. Again, its from the business and not myself.
    This reads as though these are "ordinary" course of business transactions. How would it be a preference in your personal bankruptcy? Remember, the business is its own entity. Unless it files bankruptcy, under the reorganization protections of Chapter 11 or a straight liquidation in Chapter 7, there are no preferences.

    There are too many questions. The most important one is... why have you not shutdown this failing business? I understand completely that you're trying to protect the customers, but it is reading as though this is a house of cards. It's how most business fail by trying to keep going and hoping that some breakthrough would occur and get the business out of debt. It already reads as though the business is under severe financial stress.

    I'm not even sure that you have to turn over business records in your personal bankruptcy. The Statement of Financial Affairs (B007) reads that "an individual debtor engaged in business as a sole proprietor, partner, family farmer, or self-employed professional..." must complete the business details. An LLC is not a partnership, so it does not fall into that category. What you do need to disclose is that you own shares, units, or some other economic value as a member in an LLC.
    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
    Status: (Auto) Discharged and Closed! 5/10
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    I am not an attorney. Any advice provided is not legal advice.

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