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A Chapter 7 Can . . . Help You Walk Away from Your Business Yet Preserve Your Business Assets

Posted by Kevin on December 23, 2014 under Bankruptcy Blog | Comments are off for this article

Protect your business assets immediately with the “automatic stay” and permanently with property exemptions.


Often, by the time you are ready to file a personal bankruptcy, your business has no meaningful assets—no inventory or equipment, no receivables, no brand or business name that you could sell. That simplifies your situation because, whether the business is in your own name or under an assumed business name as a sole proprietorship, or is in the form of a corporation, limited liability company, or partnership, its lack of assets avoids a bunch of thorny issues.

BUT, even if your business DOES have some assets, as long as that business is a sole proprietorship, filing a personal Chapter 7 case often provides you a sensible way for dealing with those remaining business assets. You may be able to keep those assets if you need them, or if not, you can let your Chapter 7 trustee sell them and pay some of your most important creditors.

Business Assets Protected by the “Automatic Stay”

You may want to keep business assets which you need to use to generate income after your bankruptcy—either as an employee or through self-employment.

As long as your prior business was in the form of a sole proprietorship, your personal bankruptcy filing will immediately protect your business assets (as well as your personal ones) from seizure by garnishment, foreclosure, repossession and such.

As for secured debts related to the business—secured by collateral like your business vehicle or equipment, for example—the creditor would be prevented from repossessing its collateral, at least temporarily. That gives time for your attorney to offer for you to “reaffirm” the debt—agree to remain personally liable on it—so that you can keep the collateral.

Business Assets Protected by Property “Exemptions”

Instead, the trustee will be interested in your “free and clear” business assets. However, you will be able to keep such assets to the extent they are covered by your personal “exemptions.”

A property exemption is a provision in state or federal law that allows you to shelter an asset from your creditors, and thus also from the Chapter 7 bankruptcy trustee who acts on behalf of all your creditors. Exemption laws can be quite complicated, and differ from state to state, often radically. In some states you must use that state’s system of exemptions, while in other states you have a choice of using either the state’s exemptions or a set of federal exemptions provided in the Bankruptcy Code.  NJ allows a debtor to choose; however, it is not much of a choice.  Why? Because the state exemptions are so puny that about 99.9% of debtors use the federal exemptions.  Under the federal exemptions, you get to keep a little over $2,000 of business tools.  Under NJ, it would come under the general exemption of $1000.  Clearly, in either case, the exemption is far from generous.  However, if the assets are older but usable to you, you can make an offer to the trustee.  Most trustee will entertain even a lowball offer rather than go through an auction, especially on used items of questionable value.

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