Do you ever file personal chapter 7s for people who want
Posted: Tue Aug 17, 2010 10:55 am
Mark T.Jessee wrote:
"There is no distinction between the debts of a debtor and debts of the
debtor's sole proprietorship. Debts of the sole proprietorship do not
attach to any particular assets unless specifically secured by that asset
through a valid security agreement or by operation of law."
Is it your opinion that if the sole proprietor was in debt to say, Yellow
Pages for $5,000, under an agreement between Yellow Pages and the sole
proprietor's DBA, when the sole proprietor incorporates, that debt won't be
transferred to the corp, but will be discharged in the personal BK despite
it being a "business debt"?
Holly Roark
holly@roarklawoffices.com
On Tue, Aug 17, 2010 at 2:08 AM, Mark T.Jessee wrote:
>
>
> Perhaps I missed some nuanced fact in this string, but unless there are
> business assets which a trustee would liquidate in a chapter 7, I am not
> following Dennis' logic. I usually see more harm than benefit to the debtor
> by waiting to incorporate postpetition instead of incorporating
> prepetition.
>
> Incorporating prior to the bankruptcy appears to usually provide the
> smoothest outcome for the debtor if there are no nonexempt business assets.
> Shutting down the business will cause the loss of income to the debtor and
> the loss of key components to the business, i.e. the telephone number,
> office space, employees, customer lists, etc. That is not something the
> debtor can conveniently replace when incorporating a new business
> postpetition. Incorporating prepetition prevents these hits to the business
> operation. There is no distinction between the debts of a debtor and debts
> of the debtor's sole proprietorship. Debts of the sole proprietorship do
> not attach to any particular assets unless specifically secured by that
> asset through a valid security agreement or by operation of law. If a
> prospective debtor incorporates a sole proprietorship prepetition, the
> assets transferred and used to fund the corporation are in return for the
> stock being issued in the prospective debtor's name. The debts do not
> attach to the corporation. The shares of the stock of the corporation are
> the prospective debtor's asset instead of the specific business assets. As
> most small businesses in this situation do not usually have any significant
> goodwill value without the business principal working in transition with a
> new owner, and since a chapter 7 trustee cannot force a debtor to work for a
> new business owner, it really comes down to an analysis of the likely value
> after liquidation of assets. Liquidating a sole proprietorship
> only involves assets. Liquidating a corporation requires payment to
> corporate creditors first before anything is distributed to the shareholder
> trustee. With appropriate prebankruptcy planning incorporating a new
> business will have normal creditors, office lease, employee salaries,
> payroll and/or sales taxes, utilities, etc. From a practical point it makes
> an incorporated business less enticing to liquidate than a sole
> proprietorship.
>
> Looking at sole proprietorship vs. corporation in completing the means test
> also favors prepetition incorporation. Ever since the Wiegand BAP decision
> 2 years ago holding that business expenses cannot be deducted from business
> income in determining current monthly income, speakers at our group's
> monthly meetings constantly recommend incorporating a sole proprietorship
> prior to filing a bankruptcy case. That way only the gross revenue received
> by the debtor is counted instead the gross receipts of the business in
> determining cmi and whether a debtor is above or below median income.
> Granted Weigand was a chapter 13 case, but the same principal applies in
> chapter 7 marginal cases if a trustee or creditor asserts that business
> expenses should not be included in determining cmi in chapter 7 based on the
> Weigand analysis.
>
> Absent nonexempt business assets likely to be administered by a chapter 7
> trustee, I recommend incorporation to prospective debtors that have
> employees or have the type of sole proprietorship business a trustee is
> likely to shut down due to liability issues.
>
> Mark T. Jessee
> Law Offices of Mark T. Jessee
> "A Debt Relief Agency"
> 50 W. Hillcrest Drive, Suite 200
> Thousand Oaks, CA 91360
> (805) 497-5868
>
>
>
> *On Mon 16/08/10 1:21 PM , Dennis McGoldrick easky1@yahoo.com sent:
> *
>
>
>
> bk first. New Inc. after bk filed. All of old co's nonexempt assets,
> phone, etc., to trustee.
>
>
> --- On *Sat, 8/14/10, Holly Roark *wrote:
>
>
> Subject: Re: [cdcbaa] Do you ever file personal chapter 7s for people who
> want to keep their small business running?
> To: cdcbaa@yahoogroups.com
> Date: Saturday, August 14, 2010, 11:04 PM
>
>
> So then BK as a sole proprietor, possibly shut down, and then start
> newco?
>
> Holly Roark
> CDCA
> holly@roarklawoffices.com
>
> On Sat, Aug 14, 2010 at 10:53 PM, Dennis > wrote:
>
>
> Old co new co in this situation. New co owes all of old co's debts.
> Bk of principal does not help newco as it owes old co's debts. Must Bk,
> then start newco. Never start newco before Bk, as you carry old. Co's debts
> past the Bk.
> D
> Sent from my iPhone
>
> On Aug 14, 2010, at 3:10 PM, "Larry"
> wrote:
>
>
>
> In Santa Barbara, I have had clients keep their business going with both
> Corporation and LLCs. I would never take a small business owner into a
> ch7 without an INC or LLC . More likely than not the business is
> struggling, shutting it down for any length of time would be catastrophic.
> It only costs $100.00 to file articles of incorporation. The client can
> then make the S Corp tax election. For most small businesses, an S corp
> election is cheaper the $800/yr minimum California tax on LLCs AND the FTB
> wants the $800 within 4 months of filing.
>
>
>
>
>
>
>
>
>
> Larry Webb
>
> State Bar of California 229344
>
> Central District California
>
> "A Debt Relief Agency"
>
>
>
> Larry@webbklaw. com
>
> Law Offices of Larry Webb
>
> Camarillo Ca 93010
>
>
>
> P 805.987.1400 805.987.1400
>
> F 805.987.2866
>
> C 805.750.2150 805.750.2150
>
>
>
>
>
>
>
> *From:* cdcbaa@yahoogroups.com[mailto:
> cdcbaa@yahoogroups.com]
> *On Behalf Of *Holly Roark
> *Sent:* Saturday, August 14, 2010 2:49 PM
>
> *To:* cdcbaa@yahoogroups.com
> *Subject:* Re: [cdcbaa] Do you ever file personal chapter 7s for people
> who want to keep their small business running?
>
>
>
>
>
> If the debtor incorporates, though, then there's a better chance that the
> debtor can keep it up and running? Does it make a difference whether it is
> an Inc. or an LLC?
>
>
>
> I am glad to see all the discussion on this topic.
>
> --
> Holly Roark
> holly@roarklawoffices.com
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