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Sole Proprietor Chapter 7

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  • Sole Proprietor Chapter 7

    Hi,

    I've been reading many posts here but could still use some advice to some of my specific points.

    I'm in California and am a sole proprietor - service business - Carpet Cleaning. I would classify my BK - chapter 7 as personal.

    The van and heavy equipment is wrapped in a single lease (50,000). The balance of other equipment can't be worth more than $3,000 at fire sale rates and should be exempt as tools of the trade.

    I'll be dumping an income property and about 250,000 in CC debt.

    I NEED the following:

    Keep home - homestead exemption should more than cover

    Keep Van / equipment (leased)

    Keep business telephone number - This number is actually worth quite a bit, but to no one but myself and possibly a little something to another competitor.


    From what I gather, if my business is not really worth anything to anyone else, I should be able to maintain its operation?


    The fun part is this --> 6 weeks ago, I bought out my partner (FAMILY MEMBER) in a completely ligitimate confidential settlement agreement for
    a very significant amount of money, the majority was paid at signing and the balance is to be paid in monthly installments for the next 12 months.

    I am not concerned about a trustee trying to recover money from my former partner, but I obviously would be concerned about having to pay it in again - which would be impossible in more ways than one.

    The rub here is that the buyout "implies" that there is a value to the business that otherwise would not be apparent and indeed the value of the agreement is written as such to state that I bought a number and business name.

    The buyout was a result of a very sudden disagreement and my original "plan" was not to file BK for another year or so, however I am very close to being sued by creditors and feel I need to prepare to file.

    Thanks for the advice.

  • #2
    What you have described, with the buy out of your partner, is an insider transaction. The Trustee will want those funds either from you or the partner. The lookback period is one year for insider transactions. The Trustee will want to see more than a year of your bank statements (I had to provide 2 yrs) plus 4 yrs tax returns plus 10 yrs real estate transactions. I think you get the idea.

    Yes, the Trustee will also more likely than not, use your buy out figures to determine the value of the business. Your business will be considered an asset of yours in a personal Ch 7. How would you justify to the Trustee that the business value has suddenly declined since your buy out 6 weeks ago? Remember, it is the Trustee's job to find assets to liquidate to pay your creditors. When you have a business the Trustee is looking for any and all assets to liquidate and will review your past financials very carefully.

    You either need to come up with another plan (say Ch 11 for example) or wait at least a year to file based on the limited information in your post. At a minimum, you will want to consult with several BK attorneys that are familiar with a personal filing with a small business complication. When you have a small business you automatically get much more Trustee interest then if you are a W-2 type employee.
    Last edited by StartingOver08; 11-09-2009, 07:45 AM.
    Filed CH 7 9/30/2008
    Discharged Jan 5, 2009! Closed Jan 18, 2009

    I am not an attorney. None of my advice is legal advice in any way..

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