Chapter 7 and an LLC

[jenny12483]

I am wanting to file a chapter 7 in Missouri but I had some problems finding a job so I started an LLC business. In the last 2 years I have done ok with it and have gained some assets for the company. These assets were only abtained because family members lent money to the business to buy these assets. These family members have not been paid back and techinally own the assets.

I just spoke to a lawyer today and they say that they might take away my equipment for the business. Without the equipment I can not work. I have tried to find work but in this economy it is not easy.

What can I do to keep the assets to keep working and also not lose the money that other people paid for these assets that I have not paid back yet.

Could the family members take the assets from the company so they dont lose their money?

[Dst1]

The obvious question is what type of agreement do you have with your relatives. Do you have a loan with your family members that is secured by these assets in the same way a car loan is secured by a car? Or did your family members simply give you the money and you bought assets with it. Difficult to answer your question without more.

Also, there are exemptions for "tools of the trade" in Missouri up to $3K.

[jenny12483]

The assets value about 25K and the family members wrote up promissory notes that say I will pay them back. 2 of the loans specifically have some of the equipment as collateral the other money was given to the company to help it with expenses and get equipment if need be. They all have payments that come due next year. They did put in the note that they can demand the money at any time.

[StartingOver08]

The LLC is an asset of yours. If you file personal BK, the LLC will be considered an asset and the equipment in the LLC as available assets for your BK. Your situation is not unusual where family members (also known as 'insiders' in BK language) have provided the funds to purchase the assets. You will need an attorney that is knowlegeable in this area (small business complications in personal filings).

You will want to examine the liens on the equipment - did your family members actually file a UCC? Check here for Missouri UCC statutes: http://www.moga.mo.gov/statutes/C400.HTM If not, it is probably too late to do so know without negatively impacting the BK. Specifically check with your attorney about the promissary notes you signed at the time of purchase. Also disclose the payments you have made to the family members - all of this is important in your personal BK.

Read the Small Business thread to get an idea of what the Trustee looks for when you file personal BK and have a small business.

If you want to protect these assets, ask your attorney if filing a Ch 13 to pay the estate monthly the value of the unprotected asset will work (very possible). Another possible solution, if you can come up with lump sum proceeds is to file an asset Ch 7. Discuss this in great detail with your attorney. You will need a strategy to retain the equipment AND your business.

Key to this is your asset valuation. Remember - equipment values are rarely worth what they cost to purchase. Especially in today's market. You will want to do extensive research on actual market value to make sure you are not paying too much into the BK estate to retain your equipment.

Another issue you may have is your accounts A/R. Do you have contracts signed with your customers or do you receive payment contemporaneously with your work? If you have outstanding A/R as of your BK filing date, those funds belong to the BK estate and the Trustee will take those receivables. Any income you earn after filing is yours to keep. When you have a small business the Trustee usually requires up to date financials of the LLC as of the filing date. For me, I had to provide tax returns of the company for 4 yrs prior to filing (in addition to my personal info) and 3 yrs bank stmts etc. Lots of documentation.

[jenny12483]

How does it work with the AR? There is AR on the books but the reason it is still on the books is because the customers have not paid me. What happens if the customers do not pay me? Do I still have to pay the trustee

[frogger]

How does it work with the AR? There is AR on the books but the reason it is still on the books is because the customers have not paid me. What happens if the customers do not pay me? Do I still have to pay the trustee

No, you do not have to pay the trustee. The AR that is on the books is part of the assets of the LLC. From the time you file and forward, anything that you collect on those AR accounts will belong to the trustee, just as does the AR.

[jenny12483]

So what happens if the people do not pay me.

Also I was just informed that there is not a lot I can do to protect the company. If someone buys the company from me, is that ok as long as the money goes to the bankruptcy.

[Dst1]

So what happens if the people do not pay me.

Also I was just informed that there is not a lot I can do to protect the company. If someone buys the company from me, is that ok as long as the money goes to the bankruptcy.

Yes, but you have to be able to demonstrate that you got fair market value of the company. A dicey business with a small LLC, even made more dicey if you sell it to an insider.

In other words, you can't sell the company for pennies to a relative and then tell the BK estate "tough".

[mtbc]

I'll be interested to see how my prior equity sale to a partner is treated at my 341.

I thought that money on A/R at the time of bankruptcy, you get to keep if they are paid after the case is closed? (Though of course the trustee may try hard to collect while it's still open.)