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Do you ever file personal chapter 7s for people who wantto keep their small business running?
Correct. The corporation is a new entity with no contractual
obligation to unsecured creditors of the sole proprietor unless there
was an enforceable formal delagation of the duty to the new corporate
entity obligating it to pay the sole proprietor's debt. Otherwise, it
is an unsecured personal obligation of the sole proprietor. The fact
that there may be a dba is irrelevant. The sole proprietor and the
dba are interchangeable for all debts. The point of filing a
fictitious business name statement is to put the public on notice as
to who really is behind a dba. The Law Offices of Mark Jessee is not
required to have a dba becuase it is my actual name. If I operated
the Thousand Oaks Bankruptcy Law Firm it needs a fictitious business
name, because it is really me operating it. If I owned a firm
operating as the Thousand Oaks Bankruptcy Law Firm, Inc. and that is
its exact way it is incorporated, no fictitious business name is
required, because that is its actual name.
If the yellow page company had a judment against the sole proprietor
and for intance had served an ORAP (order to appear for judment debtor
examination) on the sole proprietor, by operation of California law it
would have a lien in all assets owned by the sole proprietor for the
next year. Under those circumstances assets transferred to the
corporation after the ORAP's issuance secure the obligation owed to
the yellow page company.
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
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On Tue 17/08/10 10:55 AM , Holly Roark hollyroark22@gmail.com sent:
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 [2]
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 [4]
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 [5]
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 [6]
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
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 [9] [mailto:cdcbaa@yahoogroups.com
[10]] ON BEHALF OF Holly Roark
SENT: Saturday, August 14, 2010 2:49 PM
TO: cdcbaa@yahoogroups.com [11]
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 [12]
www.roarklawoffices.com [13]
Central District of California
Consumer Bankruptcy Attorney
--
Holly Roark
holly@roarklawoffices.com [14]
www.roarklawoffices.com [15]
Central District of California
Consumer Bankruptcy Attorney
--
Holly Roark
holly@roarklawoffices.com [16]
www.roarklawoffices.com [17]
Central District of California
Consumer Bankruptcy Attorney
Links:
[1] mailto:mjessee@jesseelaw.com
[2] mailto:holly@roarklawoffices.com
[3] mailto:mjessee@jesseelaw.com
[4] mailto:easky1@yahoo.com
[5] mailto:cdcbaa@yahoogroups.com
[6]
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Where does this answer arise? Stock was not part of the question, but trustee takes stock and all voting rights. Trustee can even dissolve the corp.
D
Sent from my iPhone
On Aug 14, 2010, at 4:51 PM, larry@webbklaw.com wrote:
The INC is an asset not party in the bk.
Sent from my Verizon Wireless BlackBerry
The post was migrated from Yahoo.
You can't.
Sent from my iPhone
On Aug 14, 2010, at 5:13 PM, Bert Kawahara wrote:
If you incorporate an existing business before BK, how do you transfer the business to the corp without the preexisting business debt?
Bert Kawahara
The post was migrated from Yahoo.