Regarding personal bankruptcy, how detailed or extensive do the valuations of my business entities have to be? Does a simple quickbooks printout of assets and liabilities suffice? Bank statements for each entity? What is required?
A: It's up to the bankruptcy trustee. There is no specific requirement other than to cooperate with the trustee (cf., failure to file four years of tax returns is grounds for case dismissal or conversion to Chapter 13
Your ownership interest in each entity becomes the property of the bankruptcy estate, and the trustee is charged with the obligation to administer/liquidate those assets to pay your unsecured creditors. If you are the sole owner of the business, then the trustee can obtain an independent accounting of the business, at the estate's cost, assuming it can pay for it -- if not, then the trustee may accept your unaudied financial statements and tax returns.
The real issue in the trustee's mind is an inventory of the physical and intangible assets of the business and provable liabilities, because the trustee is required to liquidate all of your ownership interests, or abandon them back to you at the end of the case. If the trustee thinks he/she can find a buyer, then he/she will sell your interest for whatever he/she can get. If not, then the trustee will abandon ownership back to you.
Also, if the documents provided to the trustee are not good enough, how long do you think the typical trustee will allow to prepare or improve those business valuation documents, before dismissing the BK?
A: Legally, if the trustee thinks an asset may appreciate in value, or is worth continuing in business until it can be sold, then the trustee can either run the business until he/she can find a buyer. You could be discharged from bankruptcy, but your businesses could continue to survive and run without you for an indefinite period of time. The typical trustee, however, is not interested in a protracted operation of debtor businesses. Inevitably, the trustee will either sell the business to someone for pennies on the dollar or abandon them to you, and then close the case.
Last question and very important. Does the personal (chapter 7) bankruptcy filing have the effect of "staying" current civil litigation, or have you ever seen a chapter 7 BK filing (or discharge) actually result in the dismissal of civil litigation? The civil litigation is a patent infringement lawsuit currently pending against me in district court, California.
A: All civil actions against the debtor are stayed. The creditor/plaintiff has the option of asking for a relief from stay so as to complete the litigation, or simply filing a proof of claim
and then litigating any objection in bankruptcy court
. Usually, the latter is far less costly for both plaintiff/creditor and defendant/debtor. The issue for the bankruptcy court is whether or not the issue is one that the court is comfortable or legally authorized to resolve (e.g., the bankruptcy court will not
generally deal with probate or family law property division matters).
Regardless of any state court matter that the bankruptcy court permits to proceed to judgment, disposition of post judgment matters is subject to the bankruptcy court -- e.g., a state court judgment of a breach of contract
is irrelevant, because the debt thereby created will be immediately discharged in bankruptcy court. A judgment of fraud, in contrast, would be given effect in bankruptcy court, assuming that the judgment creditor also files an adversary proceeding (bankruptcy court lawsuit) to determine the nondischargeability of the debt. And, the point here is that, this too, creates multiple litigations concerning the same issue -- so, it may be more cost effective for the creditor to simply file a proof of claim on the debt, and then file an adversary proceeding to determine dischargeability, without completing the state court action.
The bankruptcy could would have to consider the procedural status of the state court action. A case that is far from trial may be denied relief, because an adversary proceeding would be less costly for everyone. Whereas a case that was stayed after trial but prior to final judgment, may be permitted to complete, because there's nothing left to do other than obtain the court's judgment.
Hope this helps.
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