Landlord owns assets, I'm renting. What will happen to the assets in a chapter 7

[Mad]

I'm thinking about filing for Chapter 7.

My parents are the landlords. They own the building and property. I never paid for the assets, they basically transferred the business to me, requiring that I just pay the rent. The business has about $7K in assets, mainly the necessary items needed for a restaurant, freezer, cooler, prep table, ice machine, etc.

A portion of my debt, about 40% is business related. What happens to these assets? Can my parents buy these assets from the trustee? This is a sole-proprietorship. Aside from this business, I have no other assets.

I'm really confused.

[JRScott]

Okay I'm assuming the building is still in your parents name.

Did you ever legally transfer the business to your name, or is it still in their name?

[Mad]

Okay I'm assuming the building is still in your parents name.

Did you ever legally transfer the business to your name, or is it still in their name?

The business is in my name. They're basically the landlords. They own the building, property, equipment. They're generating income from the rent.

I'm listed as the Owner, Sole Pro, on my tax returns

[JRScott]

You probably should consult with a lawyer.

It is possible the Trustee might allow you to redeem the items, to which your parents could give you the money with the understanding they are theirs. However you'll need to show the money came from them.

I would not transfer the business or its assets back to them, unless you could get fair market value from them as it would be considered an inside trade. Now once the bk is filed and the trustee offers a redemption then you could do that without jeopardizing your bk.

[Mad]

You probably should consult with a lawyer.

It is possible the Trustee might allow you to redeem the items, to which your parents could give you the money with the understanding they are theirs. However you'll need to show the money came from them.

I would not transfer the business or its assets back to them, unless you could get fair market value from them as it would be considered an inside trade. Now once the bk is filed and the trustee offers a redemption then you could do that without jeopardizing your bk.

The problem is, I haven't been able to pay rent for the past 3 months.

My parents want the business back. They have even offered me $20K. Considering the business is only 300 sqft, has gross sales of only $120K, and nets about $10K, I think that's market value. It has about $7 in assets.

[krielly]

I must be missing something here. If your parents own the equipment, why are you worried about losing it?

[Mad]

I must be missing something here. If your parents own the equipment, why are you worried about losing it?

If I file for chapter 7, the Trustee can liquidate the assets, right?

When my parents transferred the business to me, there was never a sale of the assets per se. They just let me use what was available and I would in turn pay rent.

Another question I have: When they transferred the business to me, would that automatically assume they also transferred the assets?

[JRScott]

Yes it would be reasonable to do so.

Since this is a deal between your parents and you and the nature of 'insider' trades in a bankruptcy you really should contact a lawyer and check with them if you plan to hire a lawyer.

If it wasn't an insider then basically I'd tell you to tell them to lock you out of the building and issue an eviction notice through the normal procedures for your state, indeed they may have to do that. However the Trustee has broad powers to undo what are considered insider trades. The 20k offer does sound fair to me, but its probably best to have a lawyer look at it. In buying the business they could also be assuming the debt of the business depending on laws in your state.

That's why I suggest you strongly talk to 3-4 BK lawyers, be honest about the situation and lay it all out and see what they say.