Consumer Bankruptcy Journal Winter 2016 - Page 31

ABANDON DEBTOR’S BUSINESS the Trustee does not have. I have never seen a Bankruptcy Trustee that wanted to clean a pool or mow a lawn. Shortening Time and coordination with the Bankruptcy Trustee to agree to the release of the business. The Bankruptcy Trustee also has another concern. If the Bankruptcy Trustee allows a business to continue to operate in violation of bankruptcy law, and the debtor harms someone while running the business, the Bankruptcy Trustee can be liable for the damages. In some Districts, the Bankruptcy Trustee might allow the Debtor to operate long enough for the Motion to Compel the Trustee to Abandon Debtor’s Business heard. My experience is that you are more likely to keep the business open if the business follows some simple rules and you do your job quickly. Why Should You File a “Motion to Compel Abandonment of Debtor’s Business” During a Bankruptcy? So, for many reasons, the Bankruptcy Trustee has no reason or desire to allow the Debtor to run the business. Your client may have a business that, if shut down for the length of the bankruptcy case, would cease to exist. Many businesses will lose their clients if they cannot operate during that period. As such, you need to act quickly to keep the business open. The first thing a Bankruptcy Trustee wants to know is if there are any nonexempt assets in the business that you want to keep open. One example of that might be customer lists. Another would be assumable leases that are significantly below the market. However, those are not common issues. This is where you pick up the phone and call the Trustee as soon as possible. Technically, you cannot keep a Bankruptcy Trustee from shutting down a sole proprietorship business. That is something you should advise your client in writing and get a signed waiver that the client understands that is a potential of happening. You should have the list of the assets of the business on your asset schedule and show that the business assets are exempt. I suggest that you have the assets photographed by your clients. Then send them by email to the Bankruptcy Trustee. The good news is that you can get the business out of the bankruptcy estate rather quickly if it has no value to the bankruptcy estate. That is where a “Motion to Compel Abandonment of the Debtor’s Business” comes in. The primary things that are typically exempt are the debtor’s tools of trade. Remember that inventory is not a tool of the Debtor’s trade. However, in some cases inventory may be exempted using a sta te’s “wildcard exemptions.” If the “assets” are not exempt, show the Bankruptcy Trustee that the business and assets have no value to the Bankruptcy Estate. In many Bankruptcy Court Districts in the United States, a Bankruptcy Trustee will always shut the business down immediately. If they follow the law, that is what they should do. Then you need to file the “Motion to Compel Abandonment of Debtor’s Business” immediately. You should get it heard as quickly as possible and get the Bankruptcy Court Order abandoning the business back to the Debtor so they can reopen the doors of the business. This may require an Order personal liability if the Trustee allows the business to stay open pending the hearing on the Motion to Compel Abandonment. I always have my client obtain and have proof of liability insurance. We offer to put the Bankruptcy Trustee on the liability insurance as an additional insured. Other things that Bankruptcy Trustees are going to want is for the business to: Have no employees; Be a service business; Not be dealing materials; with hazardous Not operating an inherently dangerous business; Has all licenses and permits necessary to legally operate the business; and You immediately file a Motion to Compel Abandonment of Debtor’s Business. I have found that, at least in my Bankruptcy District, if you do all of the above, the Bankruptcy Trustees have allowed the business to continue to operate pending the Court hearing. In fact, in many instances, the Bankruptcy Trustees will actually file a Statement of Non-opposition to my motion. If you are prepared, and you have prepared your client, this will typically not be a huge problem. At worst, if prepared, the business may be shut down for 2-3 weeks. Often you may not have the Bankruptcy Trustee shut it down at all. I also invite the Bankruptcy Trustee to come and immediately inspect any physical assets of the business so that the Bankruptcy Trustee can see for themselves that there is no value for the Bankruptcy Estate. The second thing the Bankruptcy Trustee is concerned about is their National Association of Consumer Bankruptcy Attorneys Winter 2016 CONSUMER BANKRUPTCY JOURNAL 31