Does Business Bankruptcy Eliminate My Personal Liability?

Northern California is filled with hard-working people. Many of those folks are small business owners. But running a small business can be a struggle, especially in a volatile economy. It is a great thing that inhabitants of the Sacramento Valley are proactive entrepreneurs. From general contractors to orthodontists, there are examples of what makes the Sacramento community great. However, when business wanes or taxes get out of hand many small business owners are left looking for solutions. Bankruptcy may be that solution.

Sole Proprietorship

Depending on the structure of the business, the owner may or may not be personally liable for the debts of the business. Sole proprietorships do not create a separate legal entity from the owner. Therefore, the business cannot file a bankruptcy by itself. The owner and business are one in the same. When the owner files Chapter 7 bankruptcy, the business does as well. Business debts and personal debts are treated the same and may be discharged. Depending on the value of the assets of the business, they may be protected by using exemptions. This may allow the owner to wipe out the overbearing debt, but still continue to operate the business.

One recent bankruptcy in the Eastern District of California was filed by a doctor whose sole proprietorship included multiple offices. One particular office was underperforming and forced him into the bankruptcy. Through the process of the bankruptcy, however, he will likely be able to shed the burden of the office that is losing money and refocus on the thriving locations.

Partnerships, Corporations, Limited Liability Companies

Unlike a sole proprietorship, a partnership is a separate legal entity. That means the partnership itself can file Chapter 7 bankruptcy. Also unlike a sole proprietorship Chapter 7, there is no discharge and no exemptions available. Therefore, if the partnership files a Chapter 7, the trustee will shutter the business and sell all the assets to satisfy the creditors. Depending on the type of partnership, the partners may be personally liable for some or all of the remaining debt after liquidation.

A Limited Liability Company, or LLC, and a Corporation are very similar for the purposes of filing Chapter 7 bankruptcy. A business Chapter 7 is beneficial because it is a fairly simple way to liquidate a business. This is mostly because the burden of selling assets and satisfying creditors is shifted to the trustee. Be warned, though: if the owner personally cosigned for a business debt, she will likely still be personally liable for that debt. In that case, the business bankruptcy may need to be followed up with a personal Chapter 7.

The Means Test

The “Means Test” is part of the Bankruptcy Code that determines whether the debtor has enough disposable income to pay back some of the creditors. Basically, the test compares the debtor’s average income during the six months prior to filing bankruptcy with the median income in the state where the bankruptcy is filed. In a business case, meaning that the debt is primarily business debt, the debtor doesn’t need to complete the means test at all. This allows a debtor who would otherwise be ineligible for Chapter 7 to qualify for one.

The Bottom Line

Small business owners know that there are ups and downs when running a business. Sometimes that means bankruptcy. In that case, it is important to consult a bankruptcy attorney who has experience with business bankruptcies, because they tend to be more complex than most personal bankruptcies. Don’t feel guilty because your business is having a rough time. Get some help and get back on your feet.

Chapter 7

Attending Bankruptcy Court for the Trustee and Meeting of Creditors

What is the Meeting of Creditors and Why do I have to go?

One of the most central moments during a bankruptcy is the initial meeting of creditors. There are a number of procedures and requirements with which the debtor and her attorney must comply. Failure to do so will likely lead to dismissal of the case. This means that the debtor isn’t going to get their debt discharged.

There are many purposes for the meeting of creditors, but the primary focus is to obtain further information about the debtor’s case, particularly data regarding the debtor’s assets and liabilities. In a Chapter 7 bankruptcy, the trustee is interested in, among other things, determining the value of assets and whether or not they are exempt. In a Chapter 13 bankruptcy, the trustee is interested in, among other things, determining if the payment plan is feasible and that the creditors are being paid as much as possible.

Document Requirements

Depending on local practice or bankruptcy rules, the documents required may vary. In Sacramento, there are many different trustees. Whether they are Chapter 7 or Chapter 13 trustees, they require the documents identified in the bankruptcy code. In addition, they often request additional documents. The case will be over much more quickly than the debtor would like if the trustee doesn’t get the documents she requests.

In the Eastern District of California, debtors are required to produce photo identification and proof of social security at the meeting of creditors. It is important to work closely with your attorney to make sure the proper documents are provided.

What does the trustee ask?

The trustee asks many questions, which often vary depending on the facts of the case. It is important to listen closely to the trustee’s questions and answer thoughtfully and truthfully, as the debtor will be under oath and answering under penalty of perjury. Answering honestly will also make the whole process goes more smoothly. The trustee often asks if the debtor is expecting an inheritance or if they’ve won the lottery. The trustee will ask whether the debtor read and understood all the documents that they signed and filed with the bankruptcy. In a Chapter 7 in Sacramento, there is a “Bankruptcy Information Sheet” that the debtor should read before the meeting. The trustee will ask if the debtor has done so.

There are many more questions that could come up. The best way to be prepared is to talk to an attorney about the facts of the case before the meeting. A good attorney will help prepare the debtor for all aspects of the meeting of creditors.

Do creditors really show up?

Yes. But not always. Depending on the situation, creditors will be more or less likely to appear. If a creditor believes the debtor is hiding assets or not being truthful in the bankruptcy documents, the creditor may show up and ask questions to get more information. If there is a highly contested issue in the bankruptcy, creditors are more likely to appear and ask questions of the debtor. Typically, however, in consumer bankruptcy cases, it is fairly rare for creditors to make an appearance at the meeting of creditors.

That doesn’t sound so bad.

No, it doesn’t. But it is key for the debtor to be responsive to communications from her attorney so that they can work together to satisfy all the requirements and keep the trustee satisfied. Preparation and cooperation will make the meeting go smoothly and get the debtor one big step closer to discharge.

Chapter 11

How Much Does Bankruptcy Cost: A Look At Attorney Fees

In most bankruptcy cases, the fees an attorney charges are disclosed. In fact, the Court also provides guidelines covering the range of legal fees applicable to work on consumer bankruptcy cases. In chapter 11, an attorney is paid after filing a motion for compensation which lays out exactly how much the attorney is charging and how much time was spent on particular tasks.

However, it seems that in chapter 9 (municipal bankruptcies) fees do not have to be disclosed. This means that the attorneys for Detroit could charge millions in legal fees without ever disclosing to the court or to creditors how much they are charging or what they are spending their time on. The bankruptcy judge in this case decided to take a closer look at the cost of the case, and so the judge intends to appoint an examiner to make sure that the attorneys' fees are "disclosed and reasonable." Among other things, the examiner will probably review the attorneys' fees and inform the court if they fees are out of the scope of permissible legal work. While the parties could object to the appointment of an examiner, it seems unlikely at this time.

Fortunately for most individuals considering bankruptcy, most bankruptcies are handled on a flat fee basis. This means that the price is agreed upon before the bankruptcy is filed, so that a debtor knows exactly how much he or she will be paying for a bankruptcy filing and doesn't have to worry about the hourly rate of an attorney.

Source: Tom Hals, Yahoo! News," Lawyers in Detroit bankruptcy may face scrutiny on fees," August 1, 2013

Debt Relief

Benefits and Consequences of Debt in Today's World

The past few years have forced many residents of Sacramento to rely more heavily on debt to finance everyday tasks. Many have seen their debt increase in the form of credit card debt, student loan debt or mortgage debt if the house has lost value.

In some cases, debt can be beneficial to the individual. Debt can help a student make it through school. Debt can also help a business get an idea of the ground. For example, the electric car company Tesla received a loan from the government, which it was able to fully repay in 2009. Tesla would never have been able to create the electric car without incurring that debt.

Debt can be a necessary occurrence in these economic times. For example, it can be used to finance a car that will allow the debtor to get to work or school. Debt can be a great tool to reach goals. But sometimes a debtor's financial circumstances change through no fault of their own, causing these debts to become overwhelming. Fortunately, when this happens debtors have options, such as bankruptcy, to get out of debt.

Bankruptcy is an option for individuals who are facing more debt than they can afford to pay back. This debt can include debt such as medical debt, credit card debt and mortgages. Bankruptcy allows the debtor to either discharge their debt or to create a debt repayment plan. Chapter 7 bankruptcy allows the debtor to discharge their debt. Chapter 13 bankruptcy allows the individual to create a debt repayment plan that can lower interest rates and eliminate fees.

No matter how a debtor managed to fall behind on payments, there are debt relief options. Bankruptcy is just one way debtors can regain control of their financial future.

Source: USA Today, "Debt shouldn't be a four-letter word," Jeff Reeves, July 28, 2013

Debt Relief

Yreka Bankruptcy Lawyer: What is bankruptcy court?

What is bankruptcy court? To put it simply, bankruptcy courts are the courts in which all bankruptcies must be filed, including those for Yreka bankruptcy attorneys. After a person has prepared his or her petition, schedules, and other documents, that person must file those documents at the bankruptcy court for his or her district. As bankruptcy courts are federal courts, they are often found in federal buildings along with other federal courts.

Unlike most other courts, bankruptcy courts are specialized. The judges in these courts will usually only hear bankruptcy cases and matters related to bankruptcy cases, meaning that most bankruptcy judges are experts in bankruptcy law. Also, unlike most other judges, bankruptcy court judges are appointed for fourteen year terms.

While filing for bankruptcy does have its downsides, there are also many benefits. Bankruptcy allows a person to discharge almost all of his or her debts. Further, when a person files for bankruptcy a stay against almost all creditor actions is automatically put into effect. This means that lawsuits and other collection actions, as well as foreclosures, will be put on hold.

Chapter 7

Gannon International files for Chapter 7 Bankruptcy Protection

Many companies face financial challenges at some point in their existence. Many are able to turn it around, but some are forced to turn to bankruptcy to get out from under mounting debt. There are two types of bankruptcy that a company can file, and one is Chapter 7 bankruptcy.

Chapter 7 allows the debtor to discharge their debt. A recent report indicated that an international trade company is now facing Chapter 7 bankruptcy. Gannon International is being forced into bankruptcy by three creditors who are owed almost $3 million. The Chapter 7 bankruptcy petition was filed on July 9 in bankruptcy court.

The main creditor in the filing is Connell Bros. from San Francisco. This company is a distributer of industrial food ingredients and chemicals. Their claim is for $2.4 million. Another creditor is the former COO Robert Greene. His claim is for nearly $300,000.

In 2011, Greene filed multiple lawsuits against Gannon International businesses. He alleged that the founder of Gannon has been diverting assets for personal use. Gannon has been involved in more than one lawsuit over the past few years, with most involving unpaid bank loans.

One benefit of Chapter 7 bankruptcy is that is puts an automatic stay on all creditor actions. This includes garnishment, foreclosures and repossession. Chapter 7 also allows the business to discharge their debt instead of repaying late fees and interest. Credit card debt and secured loans can be discharged under Chapter 7 bankruptcy. As our readers probably know, Chapter 7 is available for individual consumers as well as companies.

Source: St. Louis Business Journal, "Gannon International forced into bankruptcy," Greta Weiderman, July 12, 2013

Chapter 7

Chapter 7 Bankruptcy Filing Denied for CNET Founder

Today's tough economy has led many individuals to make tough choices regarding their finances. Many Americans have had to create strict budgets to try and save what they had before the economy declined. But some were in too tough a position for a simple budget to help. Some have had to turn to bankruptcy to get out of their tough financial situations.

There are two types of personal bankruptcy. One type is Chapter 7, which allows for liquidation of the filer's debts. The other type is Chapter 13, which allows the debtor to create a debt reorganization plan to pay back creditors and eliminate or reduce fees and interest. One benefit of filing for bankruptcy is that it puts an automatic stop on all creditor actions.

The founder of CNET, Halsey Minor, filed for bankruptcy last month. He is now trying to get his case reinstated because his attorney missed the deadline for filing the proper paperwork. His filing was dismissed in Los Angeles bankruptcy court because of the failure to file the proper schedules or plan required for the case. Minor filed his asset information June 7. In his filing, he listed his assets at $32 million and his debts at $104 million. Apparently the attorney did not have all the information needed to make a complete filing. The initial filing was completed on May 24.

Now, Minor's new attorney is claiming that he does not think it is fair for the debtor to be punished because his attorney did not file the correct paperwork on time.

Source: Bloomberg Businessweek, "Halsey Minor tries again for bankruptcy after missed deadline," Dawn McCarty, June 15, 2013

Chapter 7

Prominent Thoroughbred Owner Files for Bankruptcy in CA

It doesn't take too big of a downturn in the economy to affect an individual's ability to keep up with their bills. Before long, the individual may get so far behind in payments that he or she may be unable to catch up. In these instances, one of the only options available may be to file for bankruptcy. There are two options for bankruptcy; liquidation or debt reorganization. Chapter 7 bankruptcy allows the debtor to discharge most if not all of their bankruptcy. Chapter 11 or 13 allows the debtor to create a debt reorganization plan to reduce or eliminate interest rates and fees associated with the debt.

A prominent horse owner filed for bankruptcy last week. He filed for Chapter 7 bankruptcy in California May 24. He listed his liabilities between $50 and $100 million and his assets as $10 to $50 million. Bankruptcy will sell off his assets to pay creditors and satisfy some of his debt.

This horse owner sold CNET to CBS in 2008 for over one billion dollars. But he ended up in debt shortly after through the purchase of homes, horses and art.

His horses are located in Virginia and they were purchased in 2007 for about $15 million. The creditors listed in his filing include others in the horse industry as well as a few veterinary services. He is also in debt to the attorneys he used to purchase other horse related ventures.

One of the biggest benefits to filing for bankruptcy is that it places an automatic stay on creditor actions. This includes liens, repossessions and foreclosures.

Source:, "Owner Minor files for Chapter 7 bankruptcy," Frank Angst, Jun. 1, 2013

Debt Relief

Federal Crackdown on Predatory Debt Relief Agencies

The recent change in economic conditions has forced many Americans to reevaluate their spending habits to prevent debt. In many cases, however, debt is inevitable. An increase in prices for everyday goods and the fact that many individuals have lost their jobs or are underemployed has led to an increase in debt such as credit card debt. Because of these increases, many are trying to find solutions and debt relief.

In some cases, where the individual in debt is unable to work his or her way out, the individual may turn to bankruptcy for help. Depending on the type of bankruptcy chosen, the individual may be able to liquidate or get rid of common consumer debt.

One industry that has increased substantially since the economic downturn is the debt consolidation industry. These agencies tend to target those who are most vulnerable and, unfortunately, the businesses are often predatory. Federal authorities are now cracking down on these types of agencies in order to protect consumers.

Recently, a U.S. attorney charged the owner of a New York-based company that opened in 2009 for its predatory practices. The company allegedly scammed over 1,200 customers. The owner and several employees were charged with conspiracy to commit wire or mail fraud and wire or mail fraud charges.

The agency charged customers $49 a month to use their service. Overall, the company collected over $6 million in fees from their customers who were in need of debt services.

Those who choose to turn to debt consolidation agencies often also qualify for a type of consumer bankruptcy. The two types of consumer bankruptcy are Chapter 7 and Chapter 13. Chapter 7 allows the individual to eliminate most of his or her debts. Chapter 13 allows the individual to create a debt repayment plan that will reduce or eliminate fees and lower interest rates.

Source: The Sacramento Bee, "NY officials vow attack on predatory debt-fixing," Larry Neumeister, May 7, 2013

Chapter 7

Company That Supports Charities Files for Chapter 7 Relief

In the current economy, uncertainty about the future is a common concern. This is especially true for business owners. Small changes in the economy can substantially affect an owner's ability to pay creditors. It does not take many missed or late payments to creditors before a business can fall very behind and face significant economic challenges. In some situations, a business owner is unable to catch up with creditors and must consider other options such as Chapter 7 bankruptcy to stop creditor harassment.

A company that helps support charities has filed for Chapter 7 bankruptcy protection. The company,, allegedly owes clients thousands of dollars. The company filed for bankruptcy protection after a court ordered the owner to pay over $400,000 to an investor.

This is not the only ruling to go against the owner. He owes hundreds of thousands of dollars to investors and clients even though the company claims revenues of over $8 million. Companies all over the country have filed suits or at least complaints that the company owes them money. The company has an 'F' rating at the Better Business Bureau.

Bankruptcy can provide both business owners and individuals with a variety of protections and an ability to get a fresh financial start. One benefit of bankruptcy is that it puts an automatic stay on creditor actions such as foreclosures, wage garnishments and repossessions. Chapter 7 bankruptcy allows the filer to liquidate and eliminate their debt.

Chapter 7 allows the filer to discharge a variety of debt including credit card debt, medical bills and mortgages if the filer does not want to keep the house.

Source:, "Company claiming support for charities files bankruptcy protection," Dan Tilkin, April 29, 2013