Lawyers says I should let business die before filing.

[Mad]

Quick recap: In 2004, my parents transferred there business to me. I didn't buy anything, they only required that I pay rent, $2000/month. The building, property, and assets still belonged to them, they just let me use the name and run the business. So I got a business license and became the operator for 4 years of a restaurant that was only grossing in sales $100K, netting about $9K...not profitable at all.

I've lost money on the business, the longer I operated the more in debt I became. About 40% of the $55K debt is business related. Right now, I can't afford to pay rent and my parents want me out of the business and they want to take it back now.

Since I didn't own any of the assets and I was just renting, my attorney says I shouldn't transfer the business back to parents, rather I should just let the business die BEFORE I file for bankruptcy. He says it will not raise any red flags, even if my parents were the original business owners, since I never owned any of the assets, even if the business originally belonged to my parents.

What do you guys think? I've been told by people to wait until after the bankruptcy before letting the business die, however, what the lawyer says seems to make sense to me.

[jktrading]

Try and go with what your lawyer is advising and perhaps bring your parents in to the office and have him explain it to them. Personally, parents come first, but try and get them to understand the situation you're in.

[Mad]

Try and go with what your lawyer is advising and perhaps bring your parents in to the office and have him explain it to them. Personally, parents come first, but try and get them to understand the situation you're in.

My parents don't know I'm even thinking about filing for bankruptcy. It's something that I really would rather not get them involved in. They're very very old fashion and lets just say if they found out I declared bankruptcy they would be extremely disappointed.

[Intoodeep80]

My parents don't know I'm even thinking about filing for bankruptcy. It's something that I really would rather not get them involved in. They're very very old fashion and lets just say if they found out I declared bankruptcy they would be extremely disappointed.

This is your life, you take the reigns and have control. Focus on your financial future. Nobody expects you to struggle financially just so your parents are kept happy.

If your parents (Dad is almost 75 and definately qualifies for "old fashion") are loving, accepting, and supportive of you, they will understand. I didnt tell my Father to the last minute (check out my posts here) and to my surprise, he's been very supportive. I thought for sure I'd get the disappointment lecture. If anything it has brought us much closer.

[Mad]

This is your life, you take the reigns and have control. Focus on your financial future. Nobody expects you to struggle financially just so your parents are kept happy.

If your parents (Dad is almost 75 and definately qualifies for "old fashion") are loving, accepting, and supportive of you, they will understand. I didnt tell my Father to the last minute (check out my posts here) and to my surprise, he's been very supportive. I thought for sure I'd get the disappointment lecture. If anything it has brought us much closer.

I still don't see the reason for me to tell them. Some people have a best-friend type relationship with there parents, I very much do not. That's just how we are.

[StartingOver08]

I still don't see the reason for me to tell them. Some people have a best-friend type relationship with there parents, I very much do not. That's just how we are.

Actually, I think your situtation requires a sit down with your parents - not because of a 'best friend relationship' but because you have a business issue that involves them whether you want it to or not.

They 'sold the buiness to you' and you 'paid rent' then the business failed. You want to transfer the business back to them. This is fine - but now that you want to involve the BK court - all of those transactions will be reviewed, and closely examined and the Trustee may get involved with the transfers back to your parents. It would make more sense for you to go to your landlords (who happen to also be your parents) and sit down and explain what is happening to come up with the best strategy for you and the business FIRST, before you file.

There is no question that you are in a rough spot. The only thing that could make it worse is to have the US Trustees office contact your parents before you did.

[JRScott]

Since you owe your parents back rent on the property then ultimately they are involved in this. You would legally have to list that back rent on the bk petition and the court will notify them. Thus it is best to sit down and talk with them first, especially since it is your parents. This might be the event that helps heal some past rifts and being the healing process.

I'd listen to your lawyer , that is why you are paying him.

[Mad]

Actually, I think your situtation requires a sit down with your parents - not because of a 'best friend relationship' but because you have a business issue that involves them whether you want it to or not.

They 'sold the buiness to you' and you 'paid rent' then the business failed. You want to transfer the business back to them. This is fine - but now that you want to involve the BK court - all of those transactions will be reviewed, and closely examined and the Trustee may get involved with the transfers back to your parents. It would make more sense for you to go to your landlords (who happen to also be your parents) and sit down and explain what is happening to come up with the best strategy for you and the business FIRST, before you file.

There is no question that you are in a rough spot. The only thing that could make it worse is to have the US Trustees office contact your parents before you did.

My parents never sold me the business and I don't want to transfer it back to them. I'm just going to let the business die. Since they're the owners of the assets and property, they can do what they want with what's left.

[Mad]

Since you owe your parents back rent on the property then ultimately they are involved in this. You would legally have to list that back rent on the bk petition and the court will notify them. Thus it is best to sit down and talk with them first, especially since it is your parents. This might be the event that helps heal some past rifts and being the healing process.

I'd listen to your lawyer , that is why you are paying him.

There is no back rent. Once I wasn't able to pay rent, I was effectively booted out.

[StartingOver08]

Well, I must have misunderstood. In one of your other posts you said 'transferred' and I mistook that for sold. I am sorry.

Since your attorney has the documentation for the transfer right in front of him, as well as your tax returns showing your ownership type, he would be the best source of advise.

[StillSwingn]

I'm curious about this (My corp just went belly up) scenario...if you don't mind me asking, what do you own? If you don't own the business, or its building or the real estate or any of the business's "tools of the trade" to operate the business it sounds like you were either just an employee or consultant? Is there any kind of corporation involved that includes you as a board member or partner in, that concerns the business?
So it sounds as if you were investing your own funds into a venture you didn't own which won't help you unless you have some way of providing an IOU or loan doc from the owners of the business. I would assume that if you did, those would be considered assets anyway and be taken by the trustee. So I think you need to lay yourself off since you "manage" the business. But this may only help you to apply for unemployment insurance...if you paid into the fund.
Really, if you do not own any part of the business, I don't see the difficulty.
Am I missing some important circumstances?

[Mad]

I'm curious about this (My corp just went belly up) scenario...if you don't mind me asking, what do you own? If you don't own the business, or its building or the real estate or any of the business's "tools of the trade" to operate the business it sounds like you were either just an employee or consultant? Is there any kind of corporation involved that includes you as a board member or partner in, that concerns the business?
So it sounds as if you were investing your own funds into a venture you didn't own which won't help you unless you have some way of providing an IOU or loan doc from the owners of the business. I would assume that if you did, those would be considered assets anyway and be taken by the trustee. So I think you need to lay yourself off since you "manage" the business. But this may only help you to apply for unemployment insurance...if you paid into the fund.
Really, if you do not own any part of the business, I don't see the difficulty.
Am I missing some important circumstances?

no no, I owned the business for the 4 years. The assets were in place before my parents let me operate the business. I didn't pay for any assets. My only requirement was that I pay rent, $2000/month. I am the sole pro of the business, have been for 4 years.

[StillSwingn]

OK, got ya....I reread the post...sorry, I didn't understand you owned the business itself.
I'd think you could close it now if your in the red, without too much issue. If its not creating a profit I'd think that it's not worth anything, provable on paper, and you could either transfer ownership back without repercussion or create a sale to your parents tagged as an asset purchase by them. The asset being your restaurant name, customer base and anything else that your parents don't already own . If the trustee believes the operating business is worth anything then you have an issue.

[Mad]

If the trustee believes the operating business is worth anything then you have an issue.

This is what i'm afraid of, as the business is in a great location and does have potential. I also don't want to get my parents involved.

I think what I'm going to do is determine the market value of the business from a reputable broker and sell it to a non-insider before I file. I know someone who will pay $15K and take over the $2000/rent and considering in 2008 it only had sales of $100K, which is very low for a restaurant, and neted $7K, I think it's a fair value for the business.

It should be noted that the business has about $8K worth of assets.

[StartingOver08]

Make sure the sale of the Business is an arms length transaction for market value.

If you are really going to file bankruptcy, then you will need to get a professional valuation of the business that you are planning to sell. The Trustee has a look back period on the sale of assets prior to filing - I am not sure how far they can look back for the sale of the business, someone on here may know and provide the answer.

If you sell to an insider (friend, family member or someone you know) then the lookback period is a year and the Trustee can undo the transaction.

If you keep a record of the value and you sell for market value then the Trustee will not have a leg to stand on if they decide to challenge the sale.
We are trying to bring these items up so you have advance notice and can adaquately prepare your BK for a successful result.