Consumer Bankruptcy Journal Winter 2016 - Page 30

Motion to Compel the Trustee to Abandon Debtor’s Business from the Chapter 7 Bankruptcy Estate By Gary Ray Fraley, Esq. CA State Bar Board of Legal Specialization Certified Bankruptcy Law Specialist Sacramento, California (This article is part of “Countdown of the Top 12 Malpractice Mistakes Made by Bankruptcy Attorneys” ongoing column) problem is that the stock is not exempt normally, except in a “wildcard” exemption state and then only to the extent of the available dollar limit. Mistake #3: Not making a “Motion to Compel the Trustee to Abandon Debtor’s Business” from the Chapter 7 bankruptcy estate. Now, let us look at the other alternative, filing “Motion to Compel Abandonment of Debtor’s Business.” It is surprising how many times I have seen attorneys post on various blogs that they just had a how it feels to not file a Motion to Compel the Trustee to Abandon Debtor’s Business during a bankruptcy. Bankruptcy Trustee close their client’s business down and they do not understand why that happened. Clients are not particularly happy with their bankruptcy attorney when their business is shut down. That is especially true when they were not told that this might happen. This article addresses this issue, and how to reduce that risk. One way would be to incorporate the client’s business before filing a Chapter 7 Bankruptcy. However, that can leave your client with a corporation that they do not want, along with the issues that come with having a Corporation. This may not be an option. The second 30 CONSUMER BANKRUPTCY JOURNAL “Motion to Compel Abandonment of Debtor’s Business.” During a Bankruptcy And How it Works Like the prior article about failing to file a “Motion to Compel the Trustee to Abandon Real Property” from the bankruptcy estate, the “Motion to Compel the Trustee to Abandon Debtor’s Business” is basically the same motion. However, this “Motion to Compel Abandonment of Debtor’s Business” is used for a very different purpose. The Motion to “Compel Abandonment of Real Property” is to protect from the Trustee taking increases in value in the exempt home for the benefit of creditors. The “Motion to Compel Abandonment of Debtor’s Business” is to allow the client to keep their business open and operating. In Chapter 13 bankruptcy, there are specific provisions that allow the Winter 2016 Debtor to run many types of sole proprietorship businesses including ones with inventory and employees. In Chapter 7 bankruptcy, there is no comparable provision. If you read Chapter 11 U.S. Code § 721 – “Authorization to operate business,” the code allows the Bankruptcy Trustee, with Court Approval, to temporarily operate a business. That is so it can be liquidated as a business for more money than the assets could be sold for individually. That benefits the bankruptcy estate and the creditors. There is no provision in the Bankruptcy Code that allows the Debtor to run a business. In fact, there is no provision that even allows the Bankruptcy Court to even approve of the Debtor running a business. Of course, Bankruptcy Trustees are not interested in running a business such as landscaping, cleaning pools, janitorial services, hair styling, bookkeeping, selling real estate, practicing law and such. In fact, many of the service businesses that sole proprietors run require special licenses that the trustee simply does not have and cannot obtain. Most of these service businesses require skills that National Association of Consumer Bankruptcy Attorneys