Small Business Expenses

[clamp]

I'm self- employed... sole proprietor... most of my debts I'm going to file for are personal... but will they allow me to continue to pay for things to run my business... if I don't, I will have NO income. I publish a little local newspaper... income is from advertisers... but I have to pay the printer in advance for it to go out... will they let me pay this after I file? If not, I'm SCREWED!

[justbroke]

If you are filing Chapter 7 liquidation... your business is you (if you're a sole proprietor).

Thus, the business is liquidated as well.

I'm not an attorney, but if you're trying to salvage the sole-prop business and declare Chapter 7... you have some issues.

You should consult a good tax attorney and consider incorporating the business before filing. The likelihood of the Trustee allowing you to continue operating the business before the case is discharged and closed... are between slim and none.

[StartingOver08]

Also, remember if you do decide to incorporate and you are the sole owner (own 100%) of the business - it is still considered your asset. ALL income (receivables) belong to the Trustee. You need to discuss with an attorney that knows the ins and outs of business BK filings.

I had to shut my business down as the debt was discharged against me personally, but is still owed by the business (mine was an S-Corp owned 100% by me). What that meant is the money belonged to the Trustee and the corp debt belongs to the corp, even after bankruptcy.

[HHM]

Business expesnes are allowed expenses.

It sound like your business has no meaningful assets...maybe a computer and higher end software, which can typically be exempted. However, you cannot pay biz expenses on credit while in BK.

[clamp]

what if i convert the company to an llc before filing... i realize the profit from the company would still be subject to the bankruptcy as it would be 100% mine.... but wouldn't that at least allow me to continue to run the business... and i realize the computers and software are exempt under trade materials... but under an llc, would the office furniture etc. be protected?

[justbroke]

what if i convert the company to an llc before filing... i realize the profit from the company would still be subject to the bankruptcy as it would be 100% mine.... but wouldn't that at least allow me to continue to run the business... and i realize the computers and software are exempt under trade materials... but under an llc, would the office furniture etc. be protected?

Again, the scope of this discussion is beyond my expertise and any advice I would provide. I too had a registered Corporation (s-corp) and a sole-prop (d/b/a) company prior to filing. I shut them down.

The assets were primarily computer equipment (I was a virtual company) and I was able to cover some with exemptions. The other equipment had a lien from CitiFinancial, but they never perfected it.

I am no longer operating the business.

That's not to say you can't operate a business under Chapter 7. It really depends on the assets, and how juicy they look to the Trustee.

[HHM]

You don't need to go to the expense and hassle to set up an LLC. For most small business, setting up an LLC or Corp is waste of time and money.

You are allowed to operate a business in BK. Especially if it is the only source of income. Worst case scenario, if you cannot exempt all your business assets, you will redeem them from the trustee and pay a little money.

[clamp]

thanks, you guys have been of a big help.... one more question... my business too is all done on the computer (graphics) and the phone.... could my desk be considered "tools of the trade"... otherwise, where would I sit? :0(

[CatsInTrouble]

clamp- I'm a freelance writer, so we're essentially in nearly the same boat. I have already seen and retained my attorney, see him twice. I am to continue operating my virtual business, of which the assets are, basically, this laptop which is part of my exemptions. My business is an LLC, and nothing at all is happening to it. Now, I make, like next to nothing after biz expenses, which is maybe WHY nothing happens to my biz, I don't know.

The desk is part of furniture in the house and is also exempted. Go see a lawyer.

The small biz apparently creates red flags and makes you likely for an uadit I guess, because, well, I guess cause you could hide money. But, that's not a problem if you're not hiding money!

[CatsInTrouble]

"but will they allow me to continue to pay for things to run my business"

PS- if you're talking about credit cards- I am pretty sure they shut those down totally.

PS- let's swap clients. You would not believe how many graphic designers I refer to.

[clamp]

haha... you don't want MY clients.. they're the reason I'm having to file! Nope, not hiding money... but would luuuuuuuuuuv to save my desk (prob is its worth at least 2500 alone - paid 4000).... it's a tool or whatever NEEDED to conduct my business....right? I'm screwed ;0(... as for expenses to run business.... the graphics are in the form of advertising... and with this going on, I need to be able to pay the printer up front or he's not printing anything.... then I have no advertisers or no business. So, after I file, will they let me use the income from ads to pay the printer????

[clamp]

you know what's messed up about this whole thing is a married couple with no children EACH can get the exemptions.... so, say each can get the 1800 in our state for clothes... but for me, it's me and my teenage daughter... and we have to split that between us.... the exemptions should be a certain amount per person filing plus their dependents.... Errrrrgh! Which brings this up.... i have a vehicle... and my 16-year-old daughter has a vehicle (titled and registered in her name by the way - you can do that in oru state)... so even though it's legally hers.... since SHE'S legally MINE.... does she lose HER car? Ouch! That's not gonna be a pleasant conversation :0(

[StartingOver08]

Ok maybe a little bit of explanation is due here - the reason I had to shut down the S corp is because I had debt that was issued in the S corp name (for example, Advanta CC). I filed personal CH 7 BK. The debt discharges against me personally but not against the corp. However all the receivables (100%)of the corp belong to the Trustee AS OF the FILING DATE. Not after the filing date. I am a real estate agent with business expenses: advertising, rent, mls, wages, taxes, all kinds of fees etc.

The reason I had to close the corp is because the filing only got rid of the personal guarantee of the debt incurred by the S-Corp. So, for example, Advanta can go out and get a judgment against the S-Corp and any funds earned by the S-Corp then get siezed by the creditor. (Once all the suits and paperwork are completed by the creditor). Since I am the only person in the S-Corp (I think it is a similar thing with LLC's and sole prop), I have to close it and not earn money in the S-Corp anymore, unless I don't care about the business creditors siezing the income. Which I do, since it is my sole source of income. So now my business is back to me personally earning the income (as the debt has been/will be discharged against me personally they can not come after me for the debt post discharge). I could have avoided all of this by filing a BK for the S-Corp - but that is an expensive option according to my attorney. It is more cost effective to start off doing business personally again and should the income exceed X dollars, then form another corp to save on income tax. Right now, due to the market, the income tax is not much of a factor! LOL.

In summary, if there was no business debt I would not have had to close the S-Corp. But, I had separate business debt that was personally guaranteed by me and the CH 7 only discharged the personal guarantee not the business part of the debt. So you both may not have this issue to worry about.