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First Edition MARCH 2010 Editor LISA GUERIN Book Design TERRI HEARSH Cover Design JALEH DOANE Proofreading ROBERT WELLS Index THÉRÈSE SHERE Printing DELTA PRINTING SOLUTIONS, INC. Elias, Stephen. Bankruptcy for small business owners : how to file for chapter 7 / by attorney Stephen R. Elias and Bethany K. Laurence, J.D. 1st ed. p. cm. ISBN-13: 978-1-4133-1080-1 (pbk.) ISBN-10: 1-4133-1080-X (pbk.) 1. Small business United States. 2. Bankruptcy United States Popular works. I. Laurence, Bethany K., 1968- II. Title. HD2346.U6E45 2010 346.7307'8 dc22 2009041933 Copyright © 2010 by Nolo. All rights reserved. e NOLO trademark is registered in the U.S. Patent and Trademark Office. Printed in the U.S.A. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without prior written permission. 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CHAPTER Table of Contents Your Small Business Chapter 7 Personal Bankruptcy Companion 1 Part 1: Making the Decision—Is Chapter 7 Personal Bankruptcy for You? 1 Evaluate Your Debts and Your Business 5 Assess Your Personal Liability for Business Debts 6 Assess Your Spouse’s Liability for Business Debts 10 Assess Whether Your Business Is Viable 12 2 How Chapter 7 Personal Bankruptcy Works 15 e Chapter 7 Process 16 Who Can File for Chapter 7 18 What Happens to Your Property in Chapter 7 Bankruptcy? 22 Which Debts Are Discharged in Chapter 7? 29 Is Chapter 7 the Right Choice? 32 3 Other Options for Handling Business Debt 33 If You Want to Close Your Business 34 If You Want to Continue Your Business 41 Options for Dealing With Corporate and LLC Debt 46 Part 2: Filing for Chapter 7 Personal Bankruptcy 4 e Automatic Stay 53 Who the Stay Protects 54 Actions Prohibited by the Automatic Stay 55 When the Automatic Stay Doesn’t Apply 57 Rules for Commercial Leases 59 Residential Evictions 60 5 Your Bankruptcy Estate 63 Property in Your Bankruptcy Estate 64 Property at Is Not in Your Bankruptcy Estate 77 6 Understanding Property Exemptions 81 How Exemptions Work 83 Applying Exemptions to Your Property 88 Selling Nonexempt Property Before You File 99 7 What Happens to Your Home 105 How Bankruptcy Affects a Typical Homeowner 107 Will You Lose Your Home in a Chapter 7 Bankruptcy? 111 Ways to Keep Your House 122 8 Secured Debts 127 What Are Secured Debts? 128 What Happens to Secured Debts When You File for Bankruptcy 131 Options for Handling Secured Debts in Chapter 7 Bankruptcy 132 9 Complete and File Your Bankruptcy Paperwork 145 Gather the Necessary Documents 147 Get Some Information From the Court 150 For Married Filers 152 Required Forms and Documents 154 Form 1—Voluntary Petition 157 Form 6—Schedules 166 Form 7—Statement of Financial Affairs 210 Form 8—Chapter 7 Individual Debtor’s Statement of Intention 224 Form 21—Statement of Social Security Number 229 Form 22A—Statement of Current Monthly Income and Means-Test Calculation 229 Form 201A—Notice to Consumer Debtors Under § 342(b) of the Bankruptcy Code 245 Mailing Matrix 245 How to File Your Papers 246 After You File 248 10 Handling Your Case in Court 251 Routine Bankruptcy Procedures 252 Amending Your Bankruptcy Papers 265 Filing a Change of Address 267 Special Problems 267 [...]... lose in a Chapter 7 personal bankruptcy) , Chapter 2  |   Bankruptcy for Small Business Owners: How to File for Chapter 7 bankruptcy may not be the best option Instead, you may want to reorganize your business in Chapter 13 bankruptcy, negotiate a workout with your creditors, or consider other options (as explained in Ch 3) Part I of this book will help you decide whether Chapter 7 personal bankruptcy. .. a Chapter 13 case filed within the last six years, you cannot file for Chapter 7 This rule bars only the same person or entity from filing So, for example, if you already received a discharge in a Chapter 7 ChaPter 2  |  How Chapter 7 Personal Bankruptcy works   | 21 personal bankruptcy you filed to deal with debts from your sole proprietorship business, you may not file another Chapter 7 personal bankruptcy. .. service business with few assets, you might even be able to keep your doors open while you file for Chapter 7 personal bankruptcy Ordinarily, however, the owner of a business with significant assets or inventory would have to file for Chapter 13 bankruptcy to stay open (As explained in Ch 3, Chapter 13 bankruptcy requires you to come up with a plan to pay off some or all of your debts over three to five... information, it’s time to consider whether Chapter 7 personal bankruptcy is the best strategy for dealing with your business debt l 2 C H A P T E R How Chapter 7 Personal Bankruptcy Works The Chapter 7 Process 16 Starting Your Chapter 7 Personal Bankruptcy Case 16 The Role of the Trustee and the Court 17 The Meeting of Creditors 17 How a Bankruptcy. .. for a debt or the accuracy of information you provided to obtain a loan or credit In most bankruptcy cases, this will be the 18  |  Bankruptcy for Small Business Owners: How to File for Chapter 7 only personal appearance you have to make You’ll find more information on the creditors’ meeting, as well as other situations when you might have to appear in court, in Ch 10 How a Bankruptcy Case Ends Before... least some business debts Below are some common ways an owner of a corporation or an LLC might become personally liable for the business s debts If you are personally liable for some or all of your business debts, you will have to file a personal bankruptcy, rather than a business bankruptcy, to rid yourself of these debts 8  |  Bankruptcy for Small Business Owners: How to File for Chapter 7 Signing... sense to cut your losses now by closing the business, ChaPter 1  |  Evaluate Your Debts and Your Business  |  13 filing for Chapter 7 personal bankruptcy to wipe out your debt, and deciding whether to start over with a new business While it can be agonizing to decide to close your business down, the sooner you make this decision, the better off you will be if you decide to file for Chapter 7 personal bankruptcy. .. you filed it at least four years after you filed your earlier Chapter 7 case Who Can File for Chapter 7 Chapter 7 personal bankruptcy isn’t available to everyone If you have a higher income, you may not be eligible for Chapter 7 In addition, previous bankruptcies or fraud may disqualify some filers The Means Test In 2005, Congress changed the bankruptcy law to require some higher-income filers to repay... liable for a corporate or LLC debt, you should list all business debts when you file for Chapter 7 personal bankruptcy Business creditors might try to pierce your corporate veil and sue you personally for those debts But if you list your business creditors in your personal Chapter 7 paperwork, any potential personal liability for the business debt will be extinguished in the Chapter 7 personal bankruptcy even... LLC is responsible for its own debts and must file its own business bankruptcy case to discharge them This book doesn’t cover the special process that corporations and LLCs must follow for Chapter 7 business bankruptcy (which requires an attorney) • You may have to close your business if you file for Chapter 7 personal bankruptcy If you’ve already decided that you want out of your business, this won’t . Want to Continue Owning the Business? 13 6 | BANKRUPTCY FOR SMALL BUSINESS OWNERS: HOW TO FILE FOR CHAPTER 7 T his book is for business owners who are considering filing for personal Chapter 7. bankruptcy) , Chapter 2 | BANKRUPTCY FOR SMALL BUSINESS OWNERS: HOW TO FILE FOR CHAPTER 7 bankruptcy may not be the best option. Instead, you may want to reorganize your business in Chapter 13 bankruptcy, . TIMES NOLO How to File for Chapter 7 Attorney Stephen Elias & Bethany K. Laurence, J.D. Bankruptcy Free Legal Updates at Nolo.com Small Business Owners for • Find out if Chapter 7 bankruptcy