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

What to Do If You Are Moving While in Bankruptcy

Americans are a mobile people, so it’s not unheard of for them to move while their bankruptcy cases are still pending. Fortunately, bankruptcy is a federal matter so it’s fairly easy to transfer a case from one bankruptcy court to another if the move is a significant distance. Whether yours is a New York bankruptcy

Read More »

What Chapter Is Best for a New York Business Bankruptcy?

“Business bankruptcy” isn’t a legal term as there’s no designated chapter for businesses or businesspeople to file bankruptcy in. Thus, the correct question is which chapter is best for businesses and their principals to file in. The answer depends on the structure of the business and the principals’ goals for running it. For sole proprietorships

Read More »

It’s Not Always Worthwhile to Pay Off a Chapter 13 Plan Early

For people who’ve filed chapter 13 bankruptcy attorney Brooklyn NY ,  the question of whether to pay off the repayment plan early sometimes arises. It’s a tempting idea. Repayment plans don’t leave much discretionary income for debtors, and escaping the process can feel like a reward in itself. However, there are a few reasons to

Read More »

Why Convert a Chapter 13 Bankruptcy to Chapter 7?

Most New York bankruptcies are filed in chapter 7 because debtors have mainly unsecured consumer debts and don’t have the income for a chapter 13 repayment plan to be feasible. Others, though, prefer the benefits of chapter 13, but once they’re partway into it, they find that chapter 7 might be a better fit after

Read More »

What Is a ‘Proof of Claim’?

The term “proof of claim” comes up in New York bankruptcy sometimes, and debtors often want to know what it means. For creditors, receiving them during a debtor’s bankruptcy means they need to know how to complete them. So what are they? A proof of claim is a document a creditor in a bankruptcy files

Read More »

How to Deal With Creditors Who Violate the Discharge Injunction

Discharge of debts is one of the primary goals of a New York bankruptcy, particularly chapter 7 filings. Covered in Section 524 of the Bankruptcy Code, the full name of the term is “discharge injunction,” which means it legally forbids anyone (creditors) from enforcing claims for payment against the debtor. That does not, however, mean

Read More »
Scroll to Top