What would happen if an individual sells their business and then later files for chapter 7 bankruptcy? 18 Answers as of July 08, 2013

What would happen to a deal in which an individual is selling their business (land, building, and all assets) to another individual and the seller later files for Chapter 7 bankruptcy?

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Ray Fisher Law Offices
Ray Fisher Law Offices | Ray Fisher
If the seller is carrying a note on the sale of the business the trustee would collect the note payments. Otherwise nothing happens in the chapter 7 aside from getting your discharge.
Answer Applies to: Texas
Replied: 7/20/2011
The Schreiber Law Firm
The Schreiber Law Firm | Jeffrey D. Schreiber
If it is sold, you would likely have to account for the cash proceeds. If it is sold using a promissory note, then the Chapter 7 trustee owns the note and can sell it.
Answer Applies to: California
Replied: 7/20/2011
Law Office of Maureen O' Malley
Law Office of Maureen O' Malley | Maureen O'Malley
Depends on the reason for the sale, to whom, the reasonableness of the price, etc. If the sale is to keep assets from creditors or the trustee you bring a lot of trouble on yourself.
Answer Applies to: Virginia
Replied: 7/19/2011
Ashman Law Office
Ashman Law Office | Glen Edward Ashman
That depends on the terms and timing of the sales paperwork and Chapter 7, which no one here has read.
Answer Applies to: Georgia
Replied: 7/19/2011
Bankruptcy Law office of Bill Rubendall
Bankruptcy Law office of Bill Rubendall | William M. Rubendall
When a bankruptcy is filed all assets are part of the estate owned by the trustee subject to exemptions. Proceeds of a sale of assets would belong to the trustee. The trustee might want to set aside the sale if it is a voidable transfer. This is a complicated matter and attorney advice should be sought.
Answer Applies to: California
Replied: 7/19/2011
    Law Offices of Joseph A. Mannis
    Law Offices of Joseph A. Mannis | Todd Mannis
    They (the bankruptcy trustee) will want to know all the details of that transaction - to whom it was sold, your relationship to them, what was it sold for, and most importantly, what did you do with the proceeds of that sale. Without knowing those answers myself, hard to answer the question any further, but you'd really be best-advised to contact a bankruptcy attorney on this issue because if it goes wrong, it REALLY goes wrong.
    Answer Applies to: California
    Replied: 7/19/2011
    Eric J. Benzer, Attorney at Law
    Eric J. Benzer, Attorney at Law | Eric Benzer
    Fraud is risky.
    Answer Applies to: Maryland
    Replied: 7/18/2011
    Law Office of J. Thomas Black, P.C.
    Law Office of J. Thomas Black, P.C. | J. Thomas Black
    If a seller sells a business, and later files chapter 7, the chapter 7 Trustee is going to want to know what became of the proceeds of sale. If the seller still has the proceeds, and the money cannot be claimed as exempt under state or federal exemptions, the chapter 7 Trustee will take the money and pay the creditors, as far as the money will go, according to the priority scheme set out in the Bankruptcy Code. If the seller still owed money for the purchase price of the business, same thing happens. Unless the money that is owed can somehow be claimed as exempt, the trustee will demand turnover of the promissory note or other evidence of the debt. Then the trustee will either wait and collect the money, or possibly sell the note to another party or discount it to the business purchaser (offer to sell the note to the buyer of the business at a discount). If the sale price was grossly inadequate, a chapter 7 trustee may challenge the sale as a "fraudulent transfer." A trustee could use what are known as "strong-arm" powers to sue the purchaser to return ownership of the business to the bankruptcy estate, for the benefit of the creditors. The purchaser would be entitled to the return of his purchase money.
    Answer Applies to: Texas
    Replied: 7/18/2011
    Janet A. Lawson Bankruptcy Attorney
    Janet A. Lawson Bankruptcy Attorney | Janet Lawson
    If the sale was legitimate, followed all the rules, and was for value, nothing would happen. If the sale was a sham and "sold" for less than fair market value the trustee could set aside the sale.
    Answer Applies to: California
    Replied: 7/18/2011
    Dan Shay Law
    Dan Shay Law | Daniel Shay
    The transfer of assets would need to be listed on the Schedule of Financial affairs if within the time period and exempt. If not, The Trustee can undo the transaction and take the money for the creditors.
    Answer Applies to: California
    Replied: 7/18/2011
    Bird & VanDyke, Inc.
    Bird & VanDyke, Inc. | David VanDyke
    This would be fine except you are required to disclose any such tranfers of assets within a certain period of time prior to filing. The question the court would have for you is how much money did you get and what did you do with it? If you are attempting to sell off your assets for less than fair market and then file for bankruptcy don't do this as the court will set aside this transfer as fraudulent and take the property to pay your creditors.
    Answer Applies to: California
    Replied: 7/18/2011
    Ursula G. Barrios Law
    Ursula G. Barrios Law | Guillermo Machado
    Must disclose the amount you sold it for and what you did with money.
    Answer Applies to: California
    Replied: 7/8/2013
    Colorado Legal Solutions
    Colorado Legal Solutions | Stephen Harkess
    If the sale was an arms length transaction for fair value to an unrelated person, it is probably not going to be affected by a bankruptcy filing. The Trustee will look closely at a sale to relatives or a sale that appears to be for insufficient consideration. In such a case, the sale might be undone.
    Answer Applies to: Colorado
    Replied: 7/18/2011
    Theodore N. Stapleton, PC
    Theodore N. Stapleton, PC | Theodore N. Stapleton
    There should not be a problem as long as the sale was an arms length transaction in which the purchaser paid fair market value for the assets.
    Answer Applies to: Georgia
    Replied: 7/18/2011
    Tucker Legal Clinic
    Tucker Legal Clinic | Samuel Tucker
    The trustee would probably inquire what became of the proceeds of the sale. Perfectly legal to convert non exempt assets to exempt assets.
    Answer Applies to: Mississippi
    Replied: 7/18/2011
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