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    #1

    Preferential payments

    I have a question, we have a business that we are hoping to keep going when we file chapter 7. We believe all assets will be exempt. It is sole prop. My question is, how do I pay for product to vendors if we are not allowed to pay one person over another? If I am discharging debt to some vendor, is it not allowed that I would be purchasing things from another vendor?
    If this is true, then how are people keeping their businesses going during chapter 7 as I have read here on the forum?
    Tags: None
    #2
    A response to just be courteous. I don't know about business law but I would think that through a corporations that separates you from personal. Even an LLC or some way, but if you are now a sole proprietor, I believe you have a problem. I know in a Chapter 11, it is like a 13 in which your debts are frozen but must be serviced mostly on a cash basis, but then you are filing under individual bk and as sole proprietor, you are not separated from this. I hope I am wrong and this is best I can say. 'Hub
    If I knew it all, would I be here?? Hang in there = Retained attorney 8-06, Filed 12-28-07, Discharge 8-13-08, Finally CLOSED 11-3-09, 3-31-10 AP Dismissed, Informed by incompetent lawyer of CLOSED status, October 14, 2010.

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      #3
      How do you pay "debt" to a vendor and it not be preferential? You don't.

      Presuming that you have a good relationship with that vendor, you talk to them and have them set you up on a cash on delivery (c.o.d.) basis until bk is over.

      Preferential payments only are a problem when you are extended credit. You can operate by paying as you go.
      All information contained in this post is for informational and amusement purposes only.
      Bankruptcy is a process, not an event.......

      Comment

        #4
        frogger hits the nail on the head. If it's a "contemporaneous exchange" then it's not considered a preference. So if you purchase inventory C.O.D. you have received product for cash at the same time.

        Also, if it's a normal business transaction, it may be a "transfer" or preference, but it's excluded from the Trustee's avoidance powers (11 USC 547).
        Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
        Status: (Auto) Discharged and Closed! 5/10
        Visit My BKForum Blog: justbroke's Blog

        Any advice provided is not legal advice, but simply the musings of a fellow bankrupt.

        Comment

          #5
          Ordinary course of business

          This is a very good document that should answer your questions.

          Sure, you could buy COD... but basically if your purchases follow your ordinary course of business you have nothing to worry about. Just have invoices matching the payment amounts!

          Attention Required! | Cloudflare
          http://www.abanet.org/buslaw/blt/2010-03-04/taylor-henderson.shtml

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            #6
            Thank you, everyone for your answers!

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              #7
              critical vendor option?

              I am not sure if this would apply to your situation in a sole prop, but in a business chapter 11, we are looking at "critical vendors" payment options in our first day motions.

              you might want to talk to your lawyer about that option ...

              HTHs

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