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dkennedy
dkennedy, Attorney
Category: Bankruptcy Law
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We are considering filing a chapter 7 BK. There are two main

Customer Question

We are considering filing a chapter 7 BK. There are two main questions:

1. It looks like in BK, you are expected to turn over "books and records" of any business you have owned or operated in the past six years.

In my case, I have about five corporate entities set up, each has bad paperwork. The entities had minimal operations, no revenue, and were essentially used by me to operate a few small internet businesses. But the paperwork is bad--each "corporate kit" essentially looks the same as the first day I got it , years ago. forms were not filled out, formalities were sporadically documented, if at all; even some of the corporate stock shares had not been assigned to anyone yet, despite years of moving a decent amount of money in and out of at least one of the corps. Much of the sporatic recordkeeping can be found online, as opposed to in a corporate kit. Maybe it would be a better idea to make a subfolder on dropbox and give whoever wants access, a password, so they can see everything for themselves.

So, if I were to show up to bankruptcy court with some of the types of documents I mention above, will the BK court get mad, ask me why I didn't keep better records, and possibly dismiss my case? Or exactly what do they want to see, what is the expectation? If I show up with a few quickbooks printouts for each of the corps., to demonstrate assets and cash flow, is that enough?

2. During BK, how much control would I have to move around money in my bank accounts? Do I need to ask the BK people for permission to do transactions? Will they BK people freak out if a few of my corporate entities are still paying bills, winding down their business, or doing minimal transactions while I was going through the BK process?

3. Does the bankruptcy court use technology for its cases, or is everything still on paper documents in cardboard boxes? In what format do you hand over documents to the bankruptcy court, paper or digital (pdf, etc.)?

4. For a fairly complex Chapter 7, How many times do you need to visit the BK court, make physical appearances, before the case is over? Can you have a phone conference instead? How does everyone usually interact with each other, there? Teleconference or "in-person?"
Submitted: 2 years ago.
Category: Bankruptcy Law
Expert:  dkennedy replied 2 years ago.

Hello,

I'm going to try to answer your questions, but a few things first. As you undoubtedly know, each jurisdiction might do things slightly differently, and I'm just able to give you general information here. But, bankruptcy is federal and works about the same in every area. All federal documents, filings, etc. are online and can be accessed and read by anyone who subscribes to a service called PACER. It is public record when you file a bankruptcy of course.

The first thing I want to say is this: If you are filing a personal Chapter 7 that has nothing to do with your corporations. Each corporation is a "legal person" and it's dealings have nothing to do with your personal finances. Now, if you had a sole proprietorship you would have to produce the business records. That is the whole reason some people incorporate--they are not ever personally responsible for the debts of the corporation. So, from what you are telling me, you do not have to produce the corporate records, because that is not "your" financial info---it is the corporation's. That being said, you would have to show any income you, personally, got from the corporation as a shareholder or an employee.

As for the "hearings" and such, unless there are complications such as creditors saying you defrauded them, etc. there is usually just one meeting. It is called meeting of the creditors and creditors can show up and argue with the trustee (no judges are there). Creditors rarely, if ever, show up. It is usually in person, but I can't speak to every jurisdiction. Perhaps some of them have a closed circuit TV feed to make things easier, I don't know. The meeting of creditors takes 10 minutes usually, unless there is a creditor who is arguing about something. Then a little longer. As I said, they rarely show up, because it doesn't do them any good.

So, your worries about your corporations, I think, are totally unfounded. That is the corporations' dealings, not yours personally. Unless they (the creditors or the bankruptcy trustee, or court) try to say they weren't really actual corporations. They call that "piercing the corporate veil" but you don't need to get into all that now.

Please follow up with any questions you have. That's a lot of info to digest!

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