Paying off certain debts after bk is filed?

[Lisa68]

We are preparing to file ch 13 soon. We have a business we are trying to keep, and our lawyer says we can make arrangements to pay our vendors, in full, after we file. My husband is worried that this isn't legal/ethical. Obviously, we have to pay our vendors in order to keep buying from them and stay in business.

Has anyone ever done this? Any information is greatly appreciated.

Thanks!

[FishersMike]

Just offering a suggestion, but you may get more bites on this if you were to post in the forum for business filers. Good luck!

[987654]

There is a difference between *your* income/assets and *your businesses* income/assets. To put it simply, while your business is your asset, and a source of income, your business is a seperate entity that is not declaring bankruptcy. The debts belong to the business, not you (see below). So paying the debts of the business, using the income of the business, is a completely different animal and for all intents and purposes outside the realm of *your* bankruptcy. It all still matters (and be prepared for questions from the Trustee/show receipts, etc.), but since your business is still liable for these debts outside of any personal obligation you may have, the business must pay them to survive, so pay them

This drastically over simplifies things, but the Trustee understands the difference. Basically, my lawyer told me to continue to operate the business as normal. Technically, the business can sell assets (which it does, since it's retail), buy product, pay it's bills, etc. Again, this is because the business, while being my only source of income, still acts as it's own entity outside of BK. I just pull the income off it, and at that point it's *my* money instead of the businesses. In fact, I was advised to use BUSINESS funds to pay off BUSINESS debts prior to filing, because I still had to claim all the business property value as an asset. So if the business had $3000 sitting in a checking account, even though it was business money, I would still have to exempt it as my asset.

See, it's complicated, but sort of simple at the same time. Anyway, You should not have too much trouble with this, outside of a lot of paperwork. Maybe a fine toothed comb. But at the end of the day as long as they are legit business expenses/debt, you should have no problem.

***Even if you have personally guaranteed them, all Bankruptcy will do is erase *your* obligation to pay them. It does not exempt the BUSINESS from anything, and they vendors could still sue the BUSINESS.

[Lisa68]

Thank you so much for the response. The one thing about that that worries me is that our business is a sole prop. The way I understand it, the business's debts are my debts. We planned to form an LLC (after being in business for 11 years -- yeah, we're stupid), but there doesn't seem much point in that now.

Thanks again.