I keep saying bankruptcy is like pregnancy. You can’t be a little bankrupt. When you file a bankruptcy, you are in it 100%. It is all-encompassing.
I just got off the phone – again – from a conversation with someone who wants to do a personal bankruptcy but who is the owner or part owner of a small business. Over and over again I hear from people who seem to think that because their bankruptcy is personal, it will have absolutely nothing to do with their business. They want their business to stay in a separate compartment and be unaffected and untouched.
First thing I usually mention is that the business is an asset and has to be listed along with all the other assets that the debtor has. A value has to be placed on the business, and then we have to figure out if it can be claimed as exempt. If it can’t be claimed as exempt, and if we are talking a Chapter 7 bankruptcy, then the business will become property of the bankruptcy trustee – or it will have to be bought back from the trustee if the debtor wants to keep it. As a practical matter, most of the small businesses I hear about are virtually worthless, so that claiming them as exempt is not much of a problem – but it is a question that has to be dealt with.
Second thing I bring up is that we will probably be required to list the business name among the names used by the debtor; and once that is done, it is very likely that the bankruptcy filing will be picked up by the Star Tribune and published in their Monday business section. Typical question at this point: “What if I just transfer the business to my boyfriend?” My answer is that then we would have to disclose the transfer, which could possibly be reversed as fraudulent; and the “doing business as” would be changed to “formerly doing business as” and it still gets published in the Star Tribune.
And if you have a business partner, the “doing business as” business name can get listed in the Star Tribune even though your partner is not filing any bankruptcy. Partners in that position tend to be irate to say the least.
This is not the only circumstance, but one of many, where the bankruptcy process does involve a some pain. Those considering bankruptcy should not expect that there will be absolutely no inconvenience.