Chapter 7 and Business??

[RandyOne]

I am self employed and have to file bankrupcy due to house foreclosure. No other debt. Question I have is I know it is recommended to have minimal in cash in bank at time of filing but what about my business account. I will be filing personal bankrupcy, not business. Can/will they go after the money in my business account.? Should I minimize amount shown in business account as well? The business account has always operated in the black. Not by much as of late, but still in the black. I am filing in Indiana.
Thanks

[SUB]

Sole Proprietor or corp.?

[RandyOne]

Sorry. Sub Chapter S Corp.

[kkk1]

Why does it matter the type? You own the business, the business doesn't own you. I think the better question is whether he is the sole owner of the business.

[justplaintired]

Same type question. I am a 1099 misc employee. Decorating business. I don't carry inventory, basically, I show up at the job, gotten by the owner of the business, do the job, turn in hours and she bills them, then writes me a check. She mails in a 1099 Misc for my cash received. 2007 my income was $6804 for the year. Only expenses I use are mileage and a small amount for clothes, rags, paint brushes.. total for 2007 came to about $200. Mileage for the year came to 2100 miles. Does anyone see a problem. I file all my taxes on time and do pay self employment taxes. What type of papers will the trustee need? Any help would be greatly appreciated. Thanks!

[rfassett]

My take, the business, being a corporation, is a separate entity from you. The only way it matters is the stock that you own (shares of your Corp) is an asset that needs to be listed on your bk filing. There is also a question on the petition that asks whether you own more than x% of a (business entity). So it has to be disclosed. And you have to list the value of the Corporation as an asset. And the trustee, or more likely the office of the U S Trustee, Department of Justice, will want to see the Corporate tax returns and determine if there is any value therein that the trustee could grab and sell for the benefit of the creditors. It is possible that your corporation could be owned by someone else when this all said and done, if there is value in the Corp. If it is asset rich with little liability, you may have to kiss that cash good-bye.

[phoenyx]

rfassett is completely correct. Since the business is a corporation, they can't treat all of its assets as yours, but they will treat your stock as an asset of yours.

You previously said your S-Corp makes a bit of money, but not much. Does your S-Corp have assets that would make your S-Corp shares have a decent amount of value?

If you know what the liquidation value of your stock is, perhaps you can exempt it under a wildcard exemption. Liquidation value would be about how much the trustee would get if they took your shares snd sold it. (Note that I can't swear you would exempt at the liquidation value rather than a different value, but it should be a close enough approximation to think about until you get better advice from your bankruptcy attorney.)

For your own sanity, from what I remember reading, it's pretty rare for a trustee to take ownership of an S-Corp unless it makes a lot of money or has a decent amount of assets. (I'm filing as an owner of an S-Corp as well.)

However, this will be an important issue for you, so I definately recommend speaking with a bankruptcy attorney about it! Many attorneys will even provide free initial consultations.

As for your original question:

Amount of cash in your business account shouldn't matter. The trustee would likely want to see your company's income statement and balance sheet, rather than just its bank account. Unless you fraudulently prepared a balance sheet leaving cash-on-hand off, they'll see the cash whether it's in your business account or not. (Don't fraudulently prepare a balance sheet!) Without taking your shares, they can't garnish your S-Corp's business account -- unless your S-Corp is liable for debt you're discharging.

[phoenyx]

Same type question. I am a 1099 misc employee. Decorating business. I don't carry inventory, basically, I show up at the job, gotten by the owner of the business, do the job, turn in hours and she bills them, then writes me a check. She mails in a 1099 Misc for my cash received. 2007 my income was $6804 for the year. Only expenses I use are mileage and a small amount for clothes, rags, paint brushes.. total for 2007 came to about $200. Mileage for the year came to 2100 miles. Does anyone see a problem. I file all my taxes on time and do pay self employment taxes. What type of papers will the trustee need? Any help would be greatly appreciated. Thanks!

For your situation, it sounds like you are a sole proprietor either doing business under your personal name, or a DBA (doing business as) license from your county. It sounds like you file your business tax information on your federal 1040 Schedule C.

If so, your business is simply an alias for yourself. It is not treated as a seperate entity in any way.

So, if your business has a bank account, any funds it has in its account will be treated no different than funds you have in your personal account.

As for what the trustee will will need, for sure they will want copies of your tax return. It sounds like you're filling it out generally correct since you're paying self employment tax, so likely your federal 1040 Schedule C will have everything they need on it. They might ask for more detailed financial statements (income statement, balance sheet) for your business, however in your situation it's not a business they could try to take and sell for a profit. You are selling your artistic (as I call it) ability as a decorator. They (should) know taking the business won't take your artistic ability with it, so all they could go after is assets of your sole proprietorship since it's really just assets of you, like anything in the business's bank account.

[HHM]

With privately held, close corporations...the trustees are not really looking to take control and, in fact, I am pretty sure a trustee cannot actually take the shares and take "control" of the company. The trustee cannot become the "shareholder", all they do is take the shares to "sell" them as an asset of the BK estate (because the shares are a personal asset of the debtor). Thus, the only real option trustees have is to literally sell the shares, but since there is no ready market for shares of tiny private companies like this, it is usually a moot point.

Instead, why filers with a business get close scrutiny is to make sure they are not hiding personal assets in the business (i.e. personal assets that would be part of the BK estate). Thus, if you have cash in the business account, you will probably need to show that the amount is the "normal" amount of operating cash on hand for the business.

[AlmostFree]

You should probably have minimal cash in the business account. If you are a 100% owner of corp, you have complete control of the cash -- and the trustee knows that. If there are no corp liabilities, the value of the corp is = to at least the value of the cash. It will be considered an asset one way or another, just like any other personal assets you may have.

Think about it -- wouldn't it be too easy to build up cash in corp account and not pay it to yourself -- all for the purpose of showing less cash in your personal accounts? The trustee knows that these small closely held corps may be a corp in form but in substance are really being run as sole proprietorships.

[phoenyx]

You should probably have minimal cash in the business account. If you are a 100% owner of corp, you have complete control of the cash -- and the trustee knows that. If there are no corp liabilities, the value of the corp is = to at least the value of the cash. It will be considered an asset one way or another, just like any other personal assets you may have.

Think about it -- wouldn't it be too easy to build up cash in corp account and not pay it to yourself -- all for the purpose of showing less cash in your personal accounts? The trustee knows that these small closely held corps may be a corp in form but in substance are really being run as sole proprietorships.

I guess it couldn't hurt, but the trustee (I think) is likely going to want to see at least a balance sheet for the S-Corp. If you prepare the balance sheet correctly, which I strongly recommend doing, the asset would just transfer from the bank account to cash on hand, and they would see it anyway. But, I guess it couldn't hurt. If the trustee even looks into the S-Corp, perhaps they would screw up and just look at bank statements rather than an actual balance sheet... But even so, they would likely see you withdraw cash to bring the balance down really quickly and keep it there.

I think more important than trying to make the S-Corp look like it doesn't have money is speaking with a bankruptcy attorney about making sure your S-Corp isn't in danger, which it probably isn't, and making sure your shares are properly exempted.

[ejny65]

Thus, if you have cash in the business account, you will probably need to show that the amount is the "normal" amount of operating cash on hand for the business.

for example, accumulated sales, use taxes, withholdings that are not due yet but they will be due at the end of the month or end of quarter? right?

and since I guess most people who are looking at this post are self employed I got 2 questions also:
Did you have to provide minutes for the last two years too?
Do I need to appraise my business' worth or asset in the business or trustee will?

[HHM]

for example, accumulated sales, use taxes, withholdings that are not due yet but they will be due at the end of the month or end of quarter? right?

and since I guess most people who are looking at this post are self employed I got 2 questions also:
Did you have to provide minutes for the last two years too?
Do I need to appraise my business' worth or asset in the business or trustee will?

If your business is asset rich or cash rich such that you would really need an appraisal, I suppose it begs the question of why you need to file chapter 7.

But in any event, I suppose what the trustee's ask for depends on the type of business. I haven't really seen too many trustees ask for minutes, or anything like that. But, you do need to be able to put a value on YOUR interest in the business. Also, it would behove you to catch up on any corporate formalities before filing BK (i.e. annual meeting notices, minutes, to defend against any action to pierce the corp. viel etc).

[justplaintired]

Thanks phonex, I have not got a separate acct for my 1099 business, all money goes into our home acct. I wish I made the kind of money that it required another acct. I don't pay anything out of my home acct. to keep this business going other then gas, occasionally clothes for work.... So, since I have been filing taxes on this business faithfully since the beginning, I figure I should be safe.

I do use federal form 1040 Schedule C. My hubby also does mowing and gets a 1099Misc for his, he also uses 1040 Schedule C. He has a older mower, 1995 Dixon, he values this at 800.00. He has a weed eater I bought last summer for $40 at a garage sale, and a push mower he basically got out of the trash and him and a friend got it going. LOL

We really did try to avoid ending up here, he works 2 jobs, I work 2 jobs, but between the 2 of us we couldn't even manage to break the 40000 mark last year!

[kkk1]

You really need to be careful with businesses. HHM: the Trustee can take control of the corporation and manage it in the best interests of the creditors. This is what happens in Chapter 11. The trustee can force your business into bankruptcy if that is what is in the best interest of the creditors. But again, it depends not only on the structure of the business but the owners. In many states, it's possible to have an actual corporation where there is a sole shareholder and a sole officer. In that situation, the fact that legally you have a "corporation" is not going to matter to the trustee. IMHO, you absolutely need a good lawyer if there are business interests involved. It's much more than just a matter of selling shares.