Category Archives: Business Debt

What Is the Value of my Small Business in Bankruptcy?

Posted on July 7, 2011 | 1 Comment

A business owned by an individual filing for bankruptcy is property that must be valued, listed, and exempted (protected) in the bankruptcy the same as any other piece of property owned by that individual. If the business is incorporated, it is a separate legal entity that may or may not be filing bankruptcy along with its owner’s personal bankruptcy, but, regardless, it is an item of some potential value that must be accounted for as an aggregate concern in the individual’s personal bankruptcy.

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Posted in Business Debt, Businesses in Bankrutpcy, Chapter 13, Chapter 7, Personal Property in Bankruptcy, Property

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Can I Discharge in Bankruptcy a Settlement of a Lawsuit that Alleged Fraud?

Posted on April 14, 2011 | Leave a comment

The Bankruptcy Code states that a debt is not dischargeable in Chapter 7 or Chapter 13 bankruptcy if it is owed for money obtained through fraud. The US Supreme court has upheld even the non-dischargeability of a settlement of a lawsuit in which a complaint of fraud is alleged as owed “for money obtained through fraud.” In short, although you must list all debts owed in your bankruptcy petition when you file it, some of those debts may not actually be discharged by the bankrutpcy, and “fraudence-based” debts are one of those types.

However, the question remains: what is a debt obtained through fraud?

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Posted in Bankruptcy Laws, Bankruptcy Process, Business Debt, Debt Listing, Judicial Decisions, Michigan, Uncategorized

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Should I File a Chapter 7 Bankruptcy for my Michigan Small Business?

Posted on February 4, 2011 | 2 Comments

Filing a Chapter 7 bankruptcy for a small business is a useful option in certain very specific situations, however, it is a very common question from the owners of small businesses that are suffering in this economy. Chapter 7 is at essence intended for individuals and not businesses, and it is not possible for a business to obtain a discharge of its debts with a Chapter 7 bankruptcy filing. However, it remains possible to file a Chapter 7 bankruptcy petition for a corporation, and there are a few instances in which it may prove useful.

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Posted in Business Debt, Businesses in Bankrutpcy, Chapter 7, Michigan

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Am I Responsible for My New Spouse’s Debts?

Posted on February 9, 2010 | 1 Comment

This question is a very common one, and it is, unfortunately, often the basis for uncomfortable discussions between those wishing to marry.

Much of the confusion regarding the answer is, I think, a result of media reports of the divorces of the rich and famous, many of whom reside in California, a community property state. My state, Michigan, is not a community property state … For the purposes of divorce, it is what is known as an “equitable distribution state.” That is, couples who divorce are entitled to a distribution of the property that they accumulated through their marriage according to the contribution they made to that property. It is not an even 50% split by any means, though that can, in some circumstances, be the result. All of that discussion, however, concerns the question of property—not debt.

When it comes to bankruptcy and to concerns about “marrying into debt,” the equation is more cut-and-dry: the answer to the question of whether your are responsible for your new spouse’s debt-load is NO.  You are not automatically made party to the contracts of sale and credit your new spouse has agreed to be party to by virtue of your marriage. There is no mechanism in the law that automatically adds your name to any contract to which you have not agreed to be personally liable.  While the civil act of marriage does, depending on the state that you live in, potentially entitle you to some portion of your new spouse’s property either in the case of divorce or death, a marriage does not have any legal effect with regard to each participating spouse’s personal debt accrued prior to the marriage.

It is always a good idea, of course, to discuss your financial liabilities with a prospective spouse prior to marriage so that, as a couple, you can adequately plan for the lifestyle you wish to achieve together. Further, one may consider it a matter of personal ethics or morality to “warn” a prospective spouse if your debt-load is high. However, regardless of the outcome of that necessary discussion, unless you co-sign for loans or credit-cards after the marriage is completed, you will NOT “marry” each other’s debt.

If you are a resident of Detroit or southeast Michigan and have questions about debt and bankruptcy, please contact me at jhilla@aronofflinnell.com or (248) 977-4182 to schedule a free, initial consultation.

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Posted in Bankruptcy Planning, Business Debt, Debt Listing, Marriage and Bankruptcy

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How Much Non-Consumer Debt Can I Discharge in a Chapter 7 Bankruptcy?

Posted on October 19, 2009 | 1 Comment

Many of my bankruptcy clients in the Detroit, Michigan area have some percentage of business debt alongside their personal, consumer debt. As the job-market has soured here in Michigan, many people have tried to make their own opportunities where opportunities for traditional employment have failed, setting up LLCs or other businesses to try to make a go of it independently. Obviously, I don’t hear from those who succeed in these ventures, but I have heard from those who haven’t, whose ideas for insurance sales, landscaping services, trucking, towing, and other services simply haven’t panned out. On some occasions, these business ventures have been undertaken with personal credit-cards already in use for strictly consumer reasons. In such cases, there is no question that the individual has personally “guaranteed” the debt and may therefore discharge it in a personal Chapter 7. On other occasions, however, especially where an LLC or other corporate form has been set up by the individual and corporate credit-cards utilized, it is sometimes less clear that the individual is personally liable for the debt rather than the corporation.

I have written about the role of business debt in Chapter 7 bankruptcies before on this blog, however. The situation I am discussing here is the situation that arises when the individual has indeed personally guaranteed non-consumer, business debt and when that debt is larger than the individual’s personal debt, or, at least, when the amounts are very close. In that situation, there is a danger that the trustee appointed by the court to oversee the bankruptcy case may file a motion to dismiss the case entirely. The Bankruptcy Code defines “consumer debt” as “… debt incurred by an individual primarily for a personal, family, or household purposes.” Courts have interpreted this definition widely, but it is important to keep the proportion of debt that has been incurred for the purpose of forwarding an existing business enterprise in mind in particular.

If you are a southeast Michigan-area resident with questions about your business or other debt, please contact me at jhilla@aronofflinnell.com or (248) 977-4182 to schedule a free, initial consultation. Together, we will determine whether or not a Chapter 7 bankruptcy is the best way to eliminate your debt.

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Posted in Bankruptcy, Bankruptcy Process, Business Debt, Chapter 7

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Can I Discharge My Business Debts in a Personal Chapter 7?

Posted on April 3, 2009 | Leave a comment

Many people consider the possibility of bankruptcy as a means of dealing not just with personal debt but also with debt that is a result of expenses accrued in past business ventures. Depending upon the corporate structure of the business venture in question, this debt may or may not be dischargeable through a personal Chapter 7 filing.

If the business the debtor was involved in was a sole proprietorship, the debt resulting from the business is treated as individual debt and is dischargeable through the individual’s personal Chapter 7 filing to the same extent as other, non-business related debts. If the business in question was a general partnership or other corporate form, such as an LLC, the debt is likely not dischargeable in the individual’s personal Chapter 7, particularly if, say, the business was a single-member LLC (or PLLC in Michigan), a corporate form which is not recognized by the IRS.

The reason for this, as anyone who has been in business knows, is that a corporation is a stand-alone legal entity, a separate person entirely from the individual or individuals running the business. Just as any individual filing for bankruptcy could not list and discharge debts for their uncle or a friend, individuals cannot list and discharge debts belonging to a corporation, even one which, like the single-member LLC, is not taxed separately by the IRS.

Thus, it is extremely important when listing your debts for your bankruptcy attorney to specifically designate any debts which may be business-related rather than personal. This does not necessarily mean that your attorney does not need to know that they exist. To the contrary, there are steps that a bankruptcy attorney must still take in reporting the debts to the trustee and the bankruptcy court to protect you from the possibility that creditors of the business will “pierce the corporate veil” to pursue you personally for the debts. In addition, if one business venture in an individual’s past has succeeded another, prior venture, there may be state laws regarding corporate successorship and liability that need to be taken into consideration.

If you are considering filing for bankruptcy and are concerned about the balance of personal and business debt that you are carrying, please contact me at jhilla@aronofflinnell.com or (248) 977-4182 to schedule a free, initial consultation so that we can discuss the best options for you.

Thanks to North Carolina attorney Adrian M. Lapas and South Carolina attorney Russell A. DeMott for providing information used in this article.

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Posted in Bankruptcy, Bankruptcy Planning, Business Debt, Chapter 7, Michigan

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