Is a Corporation or other Business an asset in a Chapter 7 Bankruptcy?

Whether you have shares in a public company, own an LLC, or have an interest in a partnership they may be of value to a Bankruptcy Estate.  First, in a Chapter 7 case the estate becomes property of a Bankruptcy Trustee when filed.  We use exemptions to keep property out of the estate.  The federal wildcard is used to exempt interest in a business and is currently $13,475.  The trustee will ask the debtor’s attorney to valuate the business and may look to value the business on his/her own.  If the business is worth more than the amount exempted the trustee can make a motion to sell the business.  If successful the trustee would sell the business, pay the debtor the amount of his exemption, keep administrative fees and the remainder would go to paying off debt of the estate.  Typically, the debtor’s attorney can negotiate with the trustee to keep the business interest from being sold.  Here are some pointers:

  1. Shares of stock in a publicly traded company almost always have some value and can potentially be sold.
  2. An LLC needs to be evaluated.  Ask yourself, what could I sell my interest in this LLC for?
  3. If the business is dependent on the debtor’s working for it then it is not likely that anything exists for a trustee to sell.
  4. If there are significant assets owned by the business the trustee may have the right to sell them.

There are some options to consider in Chapter 7:

  1. First of all not all trustees will go after all businesses.  If it looks like a real project and not very lucrative the trustee may not be interested in trying to sell a business or it’s assets.
  2. If the business is not overly valuable and in another country the trustee will likely abandon the asset.
  3. If you don’t care about the business then you have nothing to worry about.
  4. Assuming you filed your Chapter 7 case in good faith and qualify for a Chapter 13 Bankruptcy you have an almost absolute right to convert your case to a Chapter 13.  In a Chapter 13 case the trustee does not sell assets.

Filing a Chapter 7 Bankruptcy case is a great way to purge yourself of debt.  If you have a business you should be very careful to assess its value before you file a Chapter 7 or 13 case.  There are many strategies my office uses to save assets in Bankruptcy and often a more complicated approach applies where the debtor owns an interest in a business.  After all, if the business is a source of income loosing it may not be an option.  To date my office has never lost a business in a Chapter 7 Bankruptcy case.  If you would like to learn more contact my office at 212-244-2882.