Free Consultation
The office is open as per the NYS Covid-19 guidelines. We are now doing both in-person and telephone consultations. Please call the office at 718-855-6840 to schedule a time to speak with one of our experienced bankruptcy attorneys.

‘Abandoned’ Business Assets in Bankruptcy

It’s a sad truth that many businesses in New York fail, prompting twin chapter 7 bankruptcies for both the business and the owner. The two most common causes of businesses shutting their doors is lack of sales (obviously) and liquidity problems, which usually involve solid sales, but the business nevertheless can’t pay its creditors because some customers still owe it money and don’t pay on time. In business terms, it can’t collect on its accounts receivable.

This is a particular pitfall in the current climate.  Customers of the first business may fully have intended to pay their debts on time.  Now, due to the coronavirus lockdowns, these customers may very well be owed money by their own customers.  Their own customers may not be able to afford to pay them, and so it goes.

In a chapter 7 business filing, as in all bankruptcies, the entity is obligated to list all its assets on its petition so creditors and the trustee know what they’re worth. If the assets have any value, the trustee will take possession, liquidate them, and use the proceeds to pay off the creditors. The more liquid the assets are, the more likely the trustee will claim and liquidate them, so accounts receivable are at the top of the list. Once this process is finished, the trustee will file a final report with the bankruptcy court stating that the assets have been cashed out.

That’s not the only option trustees have, however. The bankruptcy code authorizes the trustee to ‘abandon’ an asset of the estate if it is either “burdensome” or of “inconsequential value or benefit” to the estate (11 U.S.C. § 554). Assets are rarely burdensome, but sometimes they are of so little value that the trustee abandons them, after notifying the other parties and a hearing is held on the matter.

For businesses, this means that the assets return to the owner of the business, and if it’s the business’s accounts receivable, then what happens if there are still debts that the trustee didn’t liquidate? Answer: The owner of the assets is free to pursue those debts.

Now, obviously anything in the accounts can’t be worth a whole lot, but sometimes there are a few debts to be wrung out of old clients. Whether it’s worthwhile to pursue them is obviously a judgment call, but what happens if the owner is able to squeeze money out of the business’s former debtors? If the owner didn’t file a personal bankruptcy, it’s his or hers free and clear. If the owner did file within the last 180 days, however, then the gain must be reported to the bankruptcy court. If the filing occurred after the 180 days, then the owner gets to keep it.

For answers to more questions about businesses in bankruptcy, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy lawyers near me Bruce Weiner for a free initial consultation.

Rosenberg, Musso & Weiner, L.L.P
26 Court St # 2211
Brooklyn, NY 11242, USA
718-855-6840
http://nybankruptcy.net/

Recent Posts

The Benefits of a Short Tax Year Election to a Bankruptcy Filing

The last thing people who are considering filing bankruptcy in New York are probably interested in is filing two tax returns in one year.  Yet it is not only possible but also worthwhile to do in certain circumstances. First, what are we talking about? Federal law allows individual debtors (i.e. non-businesses) in chapter 7 or

Read More »

Strategies for Preventing Repossession of Your Vehicle

Repossession agents (“Repo Men”) have unusually dangerous jobs. In fact the Repo Times (yes, there is an online publication dedicated to repossession news) has an entire “News” section that reports on the various incidents involving people attacking repossession agents. So, it’s important to remember that these are just people doing their jobs. They may be

Read More »

How Much Debt Do I Need to File Bankruptcy?

A common question raised by people who talk to a New York bankruptcy lawyer is “Do I have enough debt to file bankruptcy?” It’s a sensible question to ask because we tend to think that the law imposes minimum thresholds and other requirements in many circumstances, like speed limits. For a straight liquidation, chapter 7

Read More »

What is a Chapter 11 bankruptcy?

What is a Chapter 11 bankruptcy, do they ever happen in Brooklyn, NY, and do I need Chapter 11 bankruptcy attorneys to file a Chapter 11 case? 1.  Chapter 11 bankruptcy is “reorganization,” as opposed to Chapter 7 “liquidation.”  It’s frequently  used by corporations that need bankruptcy protection.  And it’s also often used by individuals

Read More »
Scroll to Top