Will the creditors go after the people I sell my business to? 17 Answers as of April 16, 2015

I am a sole proprietor of a small business but I am planning on filing for bankruptcy due to business and personal credit problems. I am planning on either selling or gifting my business to a family member. Will the creditors still go after the business after it’s been given away?

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Tokarska Law Center
Tokarska Law Center | Kathryn U. Tokarska
Do NOT transfer, sell, give away any property before you discuss your situation with an attorney. You need LEGAL advise, not some Q&A type of a thing over the internet. Get a face to face consult with an attorney. I don't say this unless I think it's absolutely necessary. Just so you know, generally speaking, Trustees can and do recover assets even if they have to sue to do it.
Answer Applies to: California
Replied: 4/16/2015
GARCIA & GONZALES, P.C. | Richard N. Gonzales
Bad move! Forget your creditors - the Chapter 7 Trustee will go after your business assets. This is not a time to skimp on money. Pay an experienced Bk lawyer for an hour of their time so you can do things right. Good luck!
Answer Applies to: Colorado
Replied: 4/15/2015
Deborah F Bowinski, Attorney & Counselor at Law | Debby Bowinski
Anything you give away will be recovered by your bankruptcy trustee. If you choose to sell your business, make sure you sell it for a fair market value. Your best option will be to seek legal counsel before taking any action at all. Some actions can make a bad situation worse rather than better.
Answer Applies to: Colorado
Replied: 4/15/2015
Stephens Gourley & Bywater | David A. Stephens
The creditors can pursue the person or entity that obtained the credit. I would not sell or gift the business without speaking with a bankruptcy attorney before doing it. Such a transfer may affect your bankruptcy.
Answer Applies to: Nevada
Replied: 4/15/2015
Janet A. Lawson Bankruptcy Attorney
Janet A. Lawson Bankruptcy Attorney | Janet Lawson
Do not sell or gift to relatives. The trustee in you case will take it all back if it has any value at all. Most states do have a "bulk transfer" law which does allow creditors to go after assets if it is not complied with. You need a lawyer, you may find one at NACBA.ORG. See the attachment.
Answer Applies to: California
Replied: 4/14/2015
    The statement of financial affairs which is part of the bankruptcy papers will ask if you have operated a business in the last 6 years. If so you will need to tell the trustee what the value of the business is which should be the book value or assets less liabilities. You will have to exempt that amount if you are going to keep the business which will limit you to about $12,500. The worst thing to do is to gift the business to a family member or friend. If you did that you must list it in the statement of financial affairs and the trustee would have to go after the recipient to recover the book value of the business for the creditors. If you sell it at arms length that should be ok but then you will have the money from the sale to declare as an asset.
    Answer Applies to: Minnesota
    Replied: 4/14/2015
    Law Offices of Daniel J Winter
    Law Offices of Daniel J Winter | Daniel J Winter
    Yes the creditors and the trustee in bankruptcy can possibly pursue the business if you try to transfer it. Call a lawyer before doing anything.
    Answer Applies to: Illinois
    Replied: 4/14/2015
    Ronald K. Nims LLC | Ronald K. Nims
    If the business has assets - inventory, fixtures, machines, vehicles, accounts receivable etc - your creditors will be able to go after the new owner if you sell it. If you make a gift of the business, your creditors will be able to go after the new owner regardless of the nature of the business. Gifting a business is a bad idea if you're considering bankruptcy.
    Answer Applies to: Ohio
    Replied: 4/14/2015
    The Law Office of Darren Aronow, PC
    The Law Office of Darren Aronow, PC | Darren Aronow
    You are not allowed to "gift" or sell for less than market value. That is called preferential treatment and the trustee will likely sue that person.
    Answer Applies to: New York
    Replied: 4/14/2015
    A Fresh Start
    A Fresh Start | Dorothy G Bunce
    Even if the creditors do not go after your business assets, you can be charged as a criminal for giving away assets. The Uniform Fraudulent Transfers Act should be on your list of things to read. When you go into bankruptcy court, your bankruptcy trustee will pursue the people you gifted theses assets to. If you sell these assets for below fair market value instead of just giving them away, you are inviting your family member to be the victim of an expensive lawsuit. Some people will accept legal advice, others have to learn the hard way. What kind of person do you want to be?
    Answer Applies to: Nevada
    Replied: 4/14/2015
    Richard B. Jacobson & Associates, LLC | Richard B. Jacobson
    In many states, there are limits on 'successor liability.' Many debts do not stick with the business. They are likely to do so if the creditor has a security interest in any of the equipment or inventory. Sometimes statutes may apply some obligations of the old business to the new one in particular some kinds of unpaid taxes. Both you and your prospective buyer should contact experienced lawyers (not the same one for both of you) who can review all the facts and details and advise you.
    Answer Applies to: Wisconsin
    Replied: 4/14/2015
    Patrick W. Currin, Attorney at Law | Patrick Currin
    Transfers such as what you are proposing are illegal in BK.
    Answer Applies to: California
    Replied: 4/14/2015
    Garner Law Office
    Garner Law Office | Daniel Garner
    Transfers of assets to family members are subject to very strict scrutiny in a bankruptcy case, so the sale of your business must approximate an arms-length transaction or it could be undone by the bankruptcy trustee. The test is whether the trustee could have liquidated your business for more money than you obtained by selling it. You would be better off just shutting it down before filing bankruptcy and leaving it up to the trustee what to do with the assets. That would give you the opportunity to make a business case for the transfer to a family member without risking an accusation of a fraudulent transfer. You would have an opportunity to make the trustee your ally instead of your adversary.
    Answer Applies to: Oregon
    Replied: 4/14/2015
    The Schreiber Law Firm
    The Schreiber Law Firm | Jeffrey D. Schreiber
    If the business has value and you give it away or sell it for less than its true worth and you file bankruptcy, the bankruptcy trustee can go after the person to whom it is given or sold, recover the asset or its value and use the money to pay creditors. In the bankruptcy papers you will be required to disclose under penalty of perjury any transfers you have made, even gifts. You may have other options, so you should consult with an experienced bankruptcy attorney who can properly advise of what options you have.
    Answer Applies to: California
    Replied: 4/14/2015
    Musilli Brennan Associates PLLC
    Musilli Brennan Associates PLLC | John F Brennan
    You need a lot of legal counsel. The answer is your creditors will come after everything and anyone which might be liable and collectable.
    Answer Applies to: Michigan
    Replied: 4/14/2015
    Law Office of Andrew Oostdyk
    Law Office of Andrew Oostdyk | Andrew Oostdyk
    Yes. If you transfer the business to a family member and then file Bankruptcy, the Trustee (who represents the unsecured creditors) may void the transfer and liquidate the assets of the business for the benefit of the creditors.
    Answer Applies to: Texas
    Replied: 4/14/2015
    Danville Law Group | Scott Jordan
    Yes, that could happen if you simply give it away to a family member. The key is whether you sell the business for fair market value. What that constitutes is complicated formula of AR/AP/Fixtures/Inventory and Goodwill. You should consider hiring a bankruptcy attorney to help guide you through this difficult process.
    Answer Applies to: California
    Replied: 4/14/2015
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