Starting a business after filing

[jblaska]

I live in Michigan and am getting ready to file chapter 7 for myself. I own an LLC which I am dissolving, having sold its assets to another LLC so my creditors cant come after my existing business before I shut it down.

My question is, can I open another LLC in my own name (last one had a partner on it) during the bankruptcy proceedings or will that raise a red flag?

Thanks for the help!

[BKTango]

I am not a trustee or an attorney but to me...giant flag. I do know that the day you file ch7 is the day that sets the bk estate. Of course no new debt until you are discharged but starting a new business??? I don't know. Most people usually are a no-asset case in ch7 and find it easier to just wait out the 3-4 months before doing anything.

On another note you just sold your business' assets to another business to avoid your creditors coming after your business and you are just about to file. Hmm..... I sure hope you have put some time in between all of that going on that itself will throw a flag up. Transferring/selling of property shortly before bk and doing so knowing you are going to file is a no-no. Also you will be looked at more closely than others, as you have/had a business and may have mingling debts. Personally I wouldn't do myself any injustice of bringing any more attention to myself than what needs to be brought.

[possumfat]

Your playing with fire...............minimum one year should seperate selling/closing the business from your date of filing.

[Spartan]

Have you own/operated any business in the last 7 years?

Have you sold/transferred any asset in the last 7 years?

I had to answer these 2 questions in the filing and at the 341.


AS for starting a new business, my attorney insisted that I wait till after discharge.

[wrinkleigh]

Where is the money that you received from selling the business-- better believe that will come up.

[jblaska]

It was a small small cellphone accessory business. I sold the "assets" (remaining inventory, fixtures, etc.) for $1200. It had only been open for 8 months and I did claim a very large loss on it on my taxes. Plus, I never took a paycheck out either. Just lived off my savings.

As far as filing goes, my landlord from the retail lease will want to try to come after the LLC (which I sold the assets and am dissolving). They will see that the company has nothing to give, so they come after me, which they will see that I am bk.

My attorney says that this should keep evry1 happy. As far as opening a new one in my name, I am going to wait till it gets discharged. All I am doing is selling that inventory under a different tax id until this gets done with. Taxes, insurance, etc are all setup with this other company.

Kind of like a pizza place selling all its pizza stuff to ABC company and then after the BK is settled, re buying back the pizza stuff from ABC company.

[wrinkleigh]

I dont mean to sound harsh -- but this really sounds like textbook fraud to me. You really need to think long and hard before going through with this plan.

We were in a little different situation , we had an S-corp. We dissolved the corp, and filed personal Ch 7 to protect ourselves from having to pay back the debts in the company's name. Of course by the time we closed, we had no real assets left anyway.

Our lawyer warned us that the trustee could ask for all of the company's bank statements, balance sheet, and cash receipts ledger. He didnt in our case, but we would have glaly turned it over if he did. We didnt have anything to hide.

I encourage you to ask yourself, what would you do if your trustee asks for all of that in your case?

[petrified]

more scrutiny.....

>>All I am doing is selling that inventory under a different tax id until this gets done with. Taxes, insurance, etc are all setup with this other company.

Kind of like a pizza place selling all its pizza stuff to ABC company and then after the BK is settled, re buying back the pizza stuff from ABC company.<<

You might be considered to be hiding assets. Trust me, the fact that you have owned, do own a business WILL come up and you will be questioned extensively about it - especially because of the recent nature of your transactions.

You would do well to think long and hard before going down the bankruptcy road as you have done some of the classic things (at least as you have presented here to us) that the laws were designed to "weed out" - and you did it all while knowing you would file bk. I am not saying that you won't end up being discharged, just that you will face much more scrutiny and have to come up with a lot more information.

Just make sure that you have excellent records and can justify every action you have taken such that it would sound reasonable and above board. Hopefully, your attorney is a good one and knows more about business owners facing bk than most.

Good luck!

P

[jblaska]

Thanks for your input on this. I'm really not trying to do anything bad. My old retail spot wants $78000 for the remainder of rent. I owe $135k in house, cc, etc. What else do they expect me to do? I sold the assets to another business to liquidate and they can see that there is no way for them to collect all that.

If they ask me for books, I have a check register and most of my receipts plus reports showing my sales. It is obvious that it was not making any money. Plus, I have never taken a check out of the bus for me. I barely had enough to pay the stores bills, let alone mine.

Wouldnt they just look at it all and say, "Well he has nothing to go after and we can see he hasnt made any money, so no red flags?" I have nothing to hide.

Now I am freaking out that I may get in trouble. Should I now wait a month or two before filing after I dissolve it? I really appreciate the help on this. I am only 26 and this is my first time into business/bk.

[jblaska]

Okay, here is the bottom line on my questions. My landlord wants me to pay them $78k for remainder of lease. Will they come after me personally and/or the LLC. I personally signed the lease and it does not have the EIN# on there anywhere. If they come after the LLC, there is no way it has enough to pay them all of it. Maybe a couple thousand at most.

The lease lists me and my former partner dba "Store Name" as the tenant. We both personally guaranteed the lease. I up and left it a month ago and moved to a new location with less rent. Now the store is getting to be a little more profitable. I received a bill for the $78k saying had 10 days to pay it.

ALL my other debt is in my SS#. Only thing I am worried about is the $78k from landlord. I just want to protect my business as its the only hope of me making any money.

That is why the assets question, LLC, etc. was asked.


Thanks a bunch!

[petrified]

Personal Guarantees....

>>The lease lists me and my former partner dba "Store Name" as the tenant. We both personally guaranteed the lease. I up and left it a month ago and moved to a new location with less rent. Now the store is getting to be a little more profitable. I received a bill for the $78k saying had 10 days to pay it.<<

The landlord is going to come after you personally for two reasons:

1: Lease is in YOUR name (dba store name) and

2: You personally guaranteed the lease.

What you did wrong was to not have the lease in the name of your LLC and you should not have given a personal guarantee.

When you are in business as an LLC or Corporation, the largest purpose of these entities with regard to debt of the business, is to shield the "owners" from liability. You should always sign legal documents as your name, title and name of company. You should make sure that all leases and contracts are in the name of the company and state where it is incorporated.

If you MUST give a personal guarantee (as is mostly the case with credit extensions to a very young business) then ensure that the contract/guarantee you sign does not include language limiting your Homestead rights.

ALWAYS CONSULT AN ATTORNEY when signing contracts/leases for large amounts of money.

As I can attest to, even when you have not given personal guarantee and have signed contracts appropriately, creditors can and do come after the "owners" and you can end up with a judgment against you.

In your case, the landlord is going to come after you and your partner individually.

You stated earlier that you had "sold" your business - did you also execute a legal agreement with regard to liabilities of the company? (In that, the purchaser assumes all contracts and leases etc).

If the answer is yes, then you may not be responsible for the lease.

Using your own credit to finance the business (your SSN) does not help your business to gain a good credit rating (Dunn & Bradstreet) and you are also now personally responsible for the debts of the business, and could even end up having "pierced the corporate veil" issues.

You absolutely must speak to a competent attorney familiar with LLC and applicable corporate laws of the state wherein you incorporated.

Bottom line, you are going to end up filing personal bankruptcy to avoid the debt to the landlord and your business assets will more than likely be part of that bankruptcy estate.

You could also file Chapter 11 for the business......but with all debt in your name I am not sure how that will work to protect the business.

Starting a business (filing the right papers with State to incorporate) is just way too easy these days. There are so many pitfalls, rules and laws that it is incredibly easy to lose everything if you don't protect yourself.

Get your attorney on board with everything you have at stake and learn all you can about your particular situation before you step off that cliff into bankruptcy. You most assuredly need to finalize the wrap-up of your LLC.

One bright point - at 26, you have your whole life ahead of you and this is a fantastic learning opportunity for you. Congratulations on taking such a big risk at such a young age. Lots of today's successful business people have fallen during their first forays.....

You'll get through this.

P