Closing a business during BK

[FloridaGuy]

Hi All,

As some of you have read from some of my other posts we have a complicated case which much of the comments on the forum can't assist with, but I thought I'd see if anyone may have experience with a similar situation.

My Lawyer is again out-of-town until next week, and we do have a meeting scheduled to finalize all the information in our petition the day before he files.

Basically the business is still currently running... although at a HUGE loss. We have a lot of retail inventory in stock. Here's the problem. (Which will be discussed next week with Lawyer, as well) Even when we file BK, the business lease for our store is exempt from a stay. They can kick us out at any time. (The original reason to see the lawyer was to hold landlord off as they want LOT'S of money I Kinda owe them)

I had asked about returning inventory to the vendors for credit against what I owe them.... but that may be considered preferential treatment. So it's out. He stated, the court may want me to continue the business to sell out, or they may want to sell it off. He wasn't sure at this stage, and stated we may have to wait until our 341. However, the landlord may give us the boot before that! Obviously If I don't have a location it will be hard to sell stuff!

I was thinking the landlord may hold off on removing us, as they are likely to get a big chunk of the proceeds of the sales.

Has anyone had a similar situation, or have any thoughts? I know it's a odd situation.

[PoGirl]

That's a toughie. I have a business too that I'm trying to figure out, but it's all online so I don't have to worry about landlord issues.

What does the attorney say?

Are you still getting customers in your store? Just thinking out loud (and am certainly no expert), but would it be better to let the landlord sieze the inventory, or for you to move out and take everything with you? That would stop some of the expenses (electricity, etc) and you'ld have your inventory that you could liquidate elsewhere.

[FloridaGuy]

Attorney said we'd discuss further in our meeting next week. There are still customers, but sales are WAY down. (Further enhancing the need to BK... I couldn't pay the bills with normal sales, let alone being down 50+ % over last year)

[PoGirl]

I hear ya. I can't pay for a sale right now, even with a wicked sale going on. I think the hardest part is letting go of the dream.

[BROKENN]

Attorney said we'd discuss further in our meeting next week. There are still customers, but sales are WAY down. (Further enhancing the need to BK... I couldn't pay the bills with normal sales, let alone being down 50+ % over last year)

Waiting is the worst..... and I agree, I see sales down everywhere.

I don't know about landlords etc.. but IMHO I would think that if certain events happened to a business because if it didn't have the money, the Trustee would just have to deal with it and value it accordingly. I mean, the BK law says you are **already** bankrupt 90 days prior.

[AnnaO]

Are you trying to keep business?

You may have stated this in a different thread, but I can't tell whether you are trying to keep your business open or if you are going to close it? Also are you filing Ch. 13 to restructure the business debt and stay in business or are you filing Ch. 7 personally? I'm guessing Ch. 7 since you are on this particular forum.

It sounds like the most expeditious thing is to close down the business and cut your losses. Do you really want to keep it? You give the landlord an opportunity to re-lease the space that way.

I was 6 months behind in lease payments when I shut down my business, and oh how I wish I had closed it months earlier. My case was a little different in that I closed down my business first, got out of the retail space, and then got the paperwork together and filed for BK. Luckily I didn't have the type of business that had inventory.

Your lawyer would better know what to do regarding the assets of the business (inventory, etc.) I am guessing that the trustee will sell off or arrange sale of inventory along with any other assets.

It is definitely more complex having a BK because of a business. There are a lot more unknowns, and it may take longer, even after the debts are discharged, for the case to close. So hang in there and good luck!

[FloridaGuy]

Hi Anna,

Yea... Difficult times. Before deciding on the BK I was trying to save the biz. In June hired a consultant to rewrite a biz plan, funding plan, etc. Although I had a huge amount of debt... everyone I spoke with who looked at my numbers said it appeared to be a very viable biz.

However after being turned down 3 times for funding/loans it began to look bleak. Then in our busiest time of the year, our sales (income) are down more than 50% from last year. July through now I was hoping to be able to "catch up" a little, but with such bad numbers, I'm just getting further & further behind.

Our case is complicated as it is a S-Corp, but my wife & I our the only shareholders, and executives. Therefore as I understand it we ARE the corportaion. When we file personally, it includes the company stock (Which actually has no value) therefore including the corp.

Next week in our meeting, we are going to try and determine wether the biz will have to file seperately, or be included. I'm pretty sure we will be considered an asset case, even though personally we would be under personal exemptions the biz has about 150K in assets including inventory.

BUT.... I have someone who may be interested in buying all the biz assets. Talk about another wrench in the plan! BUT... I was thinking if this is possible, we sell everything, put the money in the bank, close the doors, and let the trustee do what they do.

There are so many IF's, AND's and OR's I am going NUTS.

[BROKENN]

Ooooooo... talk to your atty about selling the biz. Its a transfer!

I feel for you! Hang in there.

[HHM]

Our case is complicated as it is a S-Corp, but my wife & I our the only shareholders, and executives. Therefore as I understand it we ARE the corporation. When we file personally, it includes the company stock (Which actually has no value) therefore including the corp.

That is not entirely accurate. So long as you are a corporation and kept up the corporate formalities, annual meetings, etc, the trustee cannot take control of the business. The trustee can take the stock as an asset of a personal BK, but only to sell it, he cannot take control of the business. You still own the stock until it is sold, and hence, you are still owners.

The issue is who is liable for the debt. My guess you are probably liable for most of the business debt through personal guarantees. Thus, you should file a personal BK. The only time the corp. should file is if you file either a chapter 11, or you want to shut it down.

[stressin]

It does get a bit complicated when it's a business--especially one with inventory. I decided to close my business before filing. It was losing money and after over a month of closing sales, we had probably moved all that was going to move quickly. Right now the remainder of the inventory is in storage. I paid for 6 months of storage while there was still money in the business account. I also ensured that I had enough to pay my sales taxes, etc. It took almost 2 months to actually get everything out of the shop, etc. Now that we have finally finished that process, I can focus on getting the rest of hte paperwork to my lawyer--who has been paid, in full. (Another thing I wanted to ensure that I took care of before I closed the business.)
I was hoping to return merchandise to the last vendor that I owed money to (most of my debt is credit card debt...), but they wanted the merchandise palleted, weren't sure how much they would credit back, etc., so although I would rather have returned what was theirs, they didn't make that easy, and so I will have to include them in the petition. I was hoping to avoid that as I did have sufficient merchandise to offset what I owed them.
I have consulted my lawyer along the way--including asking when she felt it would be appropriate to actually close the doors. I had a going out of business sale which was advertised on the radio, in print, etc. and closed a few weeks after that.
My bankruptcy will be a personal one as mine was a sole prop. I have had months to get used to the idea, and I am almost there. It's not how I hoped things would end up--but it looks like I will be able to discharge the debt and get a fresh start--and that is a blessing.

[t2ony]

I'm trying to file ch 7 through business debt, does anybody know if student loan (pharmacy school) is considered non-consumer debt??

[HHM]

I'm trying to file ch 7 through business debt, does anybody know if student loan (pharmacy school) is considered non-consumer debt??

Its not, student loans are consumer debt.

[CastleKnight]

Been there....done that!

We were an S-corp husband and wife shareholder team as well. We were told by the first attorney. That I would have to file separate, my husband would file separate and the business would file seperate for a Chapter 13 to the tune of about $9k in fees. We then RAN to get a 2nd opinion. We filed a Chapter 7 joint Bk.Just closed the business and did this for a fee of $1400.
We moved of the rental space asap and rented a storage shed for any inventory and equipment. We had personal guarantees on most of the business creditors. So when we closed the business the bills all bounced to us anyway. It is hard to finally close the doors but it is a good move to do
asap if the business is on life support and failing fast. One creditor took control of the storage shed paying the rent at our 341 mtg. until they could auction off the contents. We handed over the keys with a sigh of relief.We filed 12-11-07 and discharge was 3-26-08. Glad it is over .... it was the worst time of our life. But it is much better now.I hope it all works out for you.Good Luck

[Andyman]

I'm kinda in the same boat. Retail craft store. However, my business is making money...just not a whole lot. I can pay myself to pay my basic personal bills but I just don't have enough to pay the CC's. Business is just down due to the housing market and the economy. I see my attorney next week so we'll see what'll happen. I want to keep my business because it's all I know and at 58, it'll be hard to find anything else. On top of that, my business is very unique so there's not a lot of folks out there that'd want to buy it.

[TheKingOfSting]

Has anyone had a similar situation, or have any thoughts? I know it's a odd situation.

You have a huge nightmare on your hands there that will likely keep you up at night for weeks, or more.

Scrap up a few thousand and hire a separate attorney from your personal BK attorney to BK your business, then walk away. Everything involved with the business will be turned over to a trustee to dispose of.

I shut down my business myself and it was horribly stressful and took up nearly two months of my time. I was literally sick with stress at times -- It is personal BK times about 5.

My business was a professional services business, meaning we had no inventory or real assets. We had an office full of used office furniture and a book full of outstanding invoices. In other words, my business was relatively simple in structure and assets.

HHM, your comments are not accurate about the Trustee's ability to take control of a corporate shares. If a person holds shares that are of value, the Trustee can seize them and exercise them. The only thing that would prevent this is a buy-sell agreement withing the corporation with other owners that force a buyout of a shareholder who is going BK.

King