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socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 38507
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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Background:Bankruptcy filed as prelude to divorce. Interest

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Background:Bankruptcy filed as prelude to divorce. Interest is owned in an S-corp that operates 3 tractors--long haul trucking. There are lien holders on each tractor, and 2 other investors.

The trustee has asked that all operations cease, and the tractors delivered to him.

My concern is, what happens to the shares of the other investors, the lien holders, and the balances of repairs, taxes, wages, etc. outstanding at this time?

MY Question:
Are there any options to stop, or delay, this order(withdraw personal BK, Put the business into Chapter 11), and pay all current balances?
Are there any options to stop, or delay, this order(withdraw personal BK, Put the business into Chapter 11), and pay all current balances?

A: The trustee cannot "order" the property turned over. The trustee would have to sue the S Corporation and prove a "preference" or "fraudulent" transfer has occurred with regard to the property demanded. Sometimes the trustee will not sue, if he/she doesn't believe that the property has sufficient value to pay creditors plus the attorney's fees necessary to litigate the matter. However, there's no way to know this, without calling the trustee' bluff.

The next alternative is to ask the court to dismiss the Chapter 7. The court will only dismiss if there is no prejudice to the debtor's creditors -- so, if the goal here is to simply stall off the inevitable seizure and sale of the equipment, then trying to dismiss may be a fruitless effort.

The final option, conversion to Chapter 11, must also be made upon motion to the court, and must also not be intended to somehow prejudice creditor rights, e.g., if the debtor is likely to be unable to confirm a Chapter 11 plan, then there is no reason to convert, so the conversion will be denied by the court.

Also, Chapter 11 is expensive to administrate. It could easily burn $25,000 per year in legal fees and administrative costs. So, this must be considered in the calculus, because it may not be worth the effort.

However, if the business can pay its bills by getting rid of some unsecured debt, then Chapter 11 may be a viable solution.

Hope this helps.

socrateaser and other Bankruptcy Law Specialists are ready to help you
Customer: replied 5 years ago.
Follow up: Can a Chapter 7 be refiled if revoked, denied, or dismissed?
A bankruptcy case is "filed," "converted," "dismissed" or "discharged." For your purposes, only a dismissal is relevant at this point.

A new case cannot be filed until at least 180 days after the dismissal of a prior case. And, where a case filed again within one year of the prior dismissal, the bankruptcy stay automatically lifts after 30 days, meaning that a debtor must pay all debts in full during that year, or the creditors can reach the debtor's assets the same as if no bankruptcy were every filed. So, in fact, there is a practical one year bar to refiling any bankruptcy petition after a prior dismissal.

Hope this helps.

Customer: replied 5 years ago.

If the "discharge" is revoked or denied, can a Chapter 7 be refiled?


Or is this the same as the dismissal?

Bankruptcy cases must generally continue until either discharged or dismissed.

A discharge motion that is denied would maintain the case on the court docket only long enough for the court to decide whether or not to modify an existing plan, convert the case to a different Chapter of the bankruptcy code, or dismiss the case.

In short, if the case is not discharged, or converted, it is dismissed.

Hope this helps.
Customer: replied 5 years ago.

Could you clearify "conversion"?


And if the trustee is successful in getting the equipment, (forcing the business into filing BK), there will be oustanding debts not listed in the current Chapter 7;

should these be added to it?

"Conversion" occurs where a case pending under one Chapter of the Bankruptcy Code is converted to another. Absent bad faith or abuse of the bankruptcy process, the debtor generally has the right to convert a case to another Chapter "at any time" if eligible to be a debtor under that Chapter. Bankr. Code §§ 706(a), 1112(a), 208(a), 1307(a); see Marrama v. Citizens Bank of Mass. (2007) 549 U.S. 365, 374-375. Additionally, parties in interest (including creditors and the U.S. Trustee) may move the court to convert a debtor's case to another Chapter "for cause." See, e.g., Bankr. Code §§ 706, 1112(b), 1307(c)-(d).

Re adding claims where the trustee forces a turnover of property not currently included in the bankruptcy petition, if the debtor intends to avoid these debts, then the debtor would ordinarily amend the petition to add the additional claims.

Hope this helps.

socrateaser and other Bankruptcy Law Specialists are ready to help you