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Paul K, Esq.
Paul K, Esq., Attorney
Category: Bankruptcy Law
Satisfied Customers: 141
Experience:  10 years Exp., Great customer service, Prompt responses.
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I sold my business to a woman a few years ago, she gave me

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I sold my business to a woman a few years ago, she gave me a downpayment and then was supposed to be making regular monthly payments to me on the loan, still owing about $40,000 to me. She had a lot of problems in the last year or two, and had a hard time making payments. We tried to be flexible and give her a break to get back on her feet, assuming she would eventually get back on her feet, but I just received notice that she is declaring chapter 7 bankruptcy. I have a multi-part question about how to handle this.

- Her hearing is Wed, and I plan to go. What should I take with me?

- Will I be questioned or have the opportunity to speak? If so, what should I say?

- I understand that I may obtain the bankruptcy papers that she files from the clerk of the court, and I can review these papers to see if anything seems inaccurate. How do I go about doing this? And will this tell me what assets she has that will go toward paying creditors, and where I am in the line up of creditors to be paid? How does the court determine that?

- I also understand that I can obtain court approval to take a deposition from her, in order to gather more detail about her assets and debts. Again, how do I go about doing this?

- What do I need to do to with the court to file proof of claim on the remainder of this loan, in the hopes that I can be paid out of the proceeds of her distribution?

- If there are assets (like the $5,000 server I sold her along with the business) that are company property or have been bought with company money, do I have a greater right to a claim on those than another creditor?

- Is there any chance at this point of getting her to reaffirm this debt or agree to voluntarily repay us, as she has said over and over again that she does plan and WANT to pay us? If so, how?

- Also, I am not 100% sure my loan should even be attached to this discharge, because the promissory note is made out in the name of Bradford LLC, rather than her personal name -- but the bankruptcy filing is in her and her husband's personal names, not the business name. I thought chapter 7 was just for personal debt. My understanding is that if a business is a separate legal entity (like an LLC), she is only personally liable for the business's debts if the loan was in her own name or she guaranteed them --- otherwise, the LLC is responsible for its own debts and must file its own business bankruptcy case to discharge them. But to my knowledge, she hasn't filed a business bankruptcy. Is this something I need to bring up with the court?

- I gather that a discharge can be denied if financial or legal impropriety can be shown -- what if she and her husband set up an LLC when they bought the business from me in order to have that "corporate veil" protection at closing, but are now claiming personal liability for a debt that should belong solely to the business? Can I dispute the discharge altogether?

- Is she required to close the business because of this? The site is still up, and she hasn't notified folks for whom she is selling their products online about the bankruptcy. What is her legal responsibility here? Do I have any right to warn friends of mine who are her vendors? And what if she shuts down the site, only to open it back up again later? Thanks!
Submitted: 2 years ago.
Category: Bankruptcy Law
Expert:  Paul K, Esq. replied 2 years ago.

Paul K, Esq. : Hello, my name is XXXXX XXXXX I would love to assist you. Give me a moment to research your issue and I will answer promptly.
Paul K, Esq. : 1) You should go as it will be informative
Paul K, Esq. : 2) The questions are all for the Debtor, but they will want to know who you are and who you represent.
Paul K, Esq. : This will take some time as there are around 10 or more questions here.
Paul K, Esq. : Give me some time to read it all and get back to you
Customer:

Sure -- I understand. I actually have to run to an appt -- can I just have you email me a response? Thanks!

Paul K, Esq. : I will respond and you just ahve to check back here later
Paul K, Esq. : and then you can review the responses and provide a review.
Paul K, Esq. : Thanks!
Customer:

Dandy. Thanks!

Paul K, Esq. :

3) YOu can speak, but only about the stuff in the petition. YOu cant ask her a ton of questions, maybe 3 or 4 quick ones.

Paul K, Esq. :

4) I do recommend going to court beforehand and getting a copy. They will make a copy of BK petition for you, you just have to pay for it.

Paul K, Esq. :

5) The Trustee at the hearing, or shortly after, will determine if there are assets to be paid out, and everyone unsecured creditor will get an equal percentage of the total amount she owed. In order to qualify, you will have to fill out a Proof of Claim form as to what she owes you. The Trustee will mail it to you if there are assets.

Paul K, Esq. :

6) To do a deposition, or 2004 Exam, you have to file for one with the Court. It would not be something you would want to do without an attorney. It will be pretty difficult, but might not be worth the time if there are no assets.If there are none, no matter what she says can get her to pay, unless she induced you to sell the business or get a loan by fraud, inducement, or if she hid things. Again, an attorney would be able to review the facts of your situation with paperwork in hand and be able to answer it.

Paul K, Esq. :

7) Your right to the assets will be the same as other creditors unless you are secured. So for example if you sold it to her and filed a UCC on the assets of the business, then you are a secured creditor/lienholder and get paid sooner.

Paul K, Esq. :

8) If the loan is to the LLC, then it is not discharged, but if the LLC is closed, then they would try to get out of it that way. YOu may want to ask at the 341 a) if the business is still active, b) what happened to all the business assets/server/etc, and c) basically any question that leads the trustee to realize there are assets, because that is how you get paid.

Paul K, Esq. :

9) You are correct about the LLC and ownership liability

Paul K, Esq. :

10) You dont want the business to tank if it is going to remain open since the business owes you money. It is in your best interest for the business to be profitable and so you get paid back.

Paul K, Esq. :

I think that was all your questions. If there are more, let me know. Also your profile says you are new to JustAnswer. Be sure to provide postive ratings whenever you ask questions if you were given good service because it shows on your profile.

Paul K, Esq. :

I am one of the helpful ones, but some people do not pick up your question to answer if there are 0 positive ratings listed next to your name.

Paul K, Esq. :

Silly, I know, but it can help you to get fast quick service in the future!!!

Paul K, Esq. :

With this many questions, it may take a little back and forth to get your questions fully answered, so let me know and I will get back to you ASAP.

Paul K, Esq. :

Have a great day!!!!

Customer:

Thanks so much for your info. I will bet that you hate anal retentive clients like me with so many questions! But I do need a couple of clarifications:

Customer:

1) I am definitely going to the hearing, but I needed to know what documentation etc. I should take with me.

Paul K, Esq. :

Well for the hearing you dont need anything

Paul K, Esq. :

THey wont ask you questions or ask you anything besides who you are

Paul K, Esq. :

and again you only get 3-4 questions normally

Paul K, Esq. :

so plan ahead of time what you will ask

Paul K, Esq. :

and again it should be focused on finding assets

Paul K, Esq. :

So Where is the server, any accounts receiveable, where are the assets

Paul K, Esq. :

or it could be questions to see if they frauded you

Paul K, Esq. :

like when you bought it did you lie on the financials as to what you are making etc

Paul K, Esq. :

so if they made themselves look better or more well off than they were

Paul K, Esq. :

then you sold to them and gave them a loan on that info

Paul K, Esq. :

and if it was a lie or fake, then that is fraud

Paul K, Esq. :

if there is anything bad like that, then the debt os not discharged

Paul K, Esq. :

Also do some research

Paul K, Esq. :

for example

Paul K, Esq. :

Look into the business

Paul K, Esq. :

call them as a random buyer

Paul K, Esq. :

or try to buy online

Paul K, Esq. :

if at the hearing, they say business is closed or not doing anything

Paul K, Esq. :

you can say "Well I just tried to buy something online and it was going through, but I cancelled the order prior to paying."

Paul K, Esq. :

so you can try to catch them in a lie

Paul K, Esq. :

so keep in mind you cant testify

Paul K, Esq. :

or really provide details

Paul K, Esq. :

it is more in the questions you ask them

Paul K, Esq. :

if you ask too many or it gets too long

Paul K, Esq. :

the Trustee will tell you to stop and schedule a 2004 Exam

Customer:

Gotcha!

Paul K, Esq. :

So be prepared

Paul K, Esq. :

and be ready to trip them up

Paul K, Esq. :

you cant just speak out either

Paul K, Esq. :

you have to be silent and then you can ask questions as the end when the Trustee says

Customer:

Okay, another clarification for #6 - I do not understand what you mean when you say


"If there are none, no matter what she says can get her to pay, unless she induced you to sell the business or get a loan by fraud, inducement, or if she hid things."

Paul K, Esq. :

I would try to call the Trustee ahead of time

Paul K, Esq. :

let them know you are coming

Paul K, Esq. :

and that you will have some questions

Paul K, Esq. :

What I mean is that if there are no assets, then there is no money you can get

Paul K, Esq. :

so assets is the key

Paul K, Esq. :

the other part of it is, as we discussed, certain debts are non-dischargeable

Paul K, Esq. :

so if they got you to sell the business on a loan to them through false pretenses, you can have the debt not discharged

Paul K, Esq. :

Again, however, if the business is still running, you may want to contact them

Paul K, Esq. :

and work out payment plan arrangements

Paul K, Esq. :

If they are, I would recommend not being too adversarial at the hearing

Paul K, Esq. :

because you get more bees with honey

Paul K, Esq. :

but if there is fraud or lying or whatever, that is different

Paul K, Esq. :

If you have any more questions, please let me know!

Paul K, Esq. :

I know it is confusing.

Paul K, Esq. :

There are so many rules and restrictions and paperwork

Paul K, Esq. :

I hope it works out and you get paid!

Customer:

Sure, absolutely. I

Customer:

am still reading through your initial notes. Let me shoot you any more quick questions then I will get to work on your instructions.

Paul K, Esq. :

No problem, like I said I will be on and off throughout the night, so take your time!

Customer:

Should I mention to the trustee that the promissory note is in the name of the LLC, or is this something that I can include in the documents I file with the court?

Customer:

I don't think I got an answer to this one.


- Is there any chance at this point of getting her to reaffirm this debt or agree to voluntarily repay us, as she has said over and over again that she does plan and WANT to pay us? If so, how?

Paul K, Esq. :

You dont have to mention that about the Note. Did you happen to get a personal guarantee by her?

Paul K, Esq. :

She could reaffirm it if you are considered secured by the business, and if so, her attorney would prep the documents and you can review them and sign off.

Customer:

What do you mean secured by the business?

Paul K, Esq. :

For example, if you gave them a loan for the purchase of the business, then essentially all the business assets and such are secured by your loan.

Paul K, Esq. :

To make this official, usually you would have filed a UCC with the state

Paul K, Esq. :

but, if the Debtors want to pay and believe you are secured, you can get around it potentially.

Paul K, Esq. :

One would need to review the petition and your agreement with them to know for sure.

Customer:

I never filed a UCC, and most of the assets were intangible, since it was a web business, so I am fairly sure that does not apply here.

Paul K, Esq. :

Ok, well then definitely see if the business itself i still running so that it can potentially pay you.

Paul K, Esq. :

If you have more questions, please let me know! Have a great day.

Paul K, Esq. :

This question is still reflecting as open, so let me know if you have any more questions. If not, be sure to provide a rating, (positive of course :) ) in order to close out this session so it does not remain open.

Paul K, Esq. :

Again, however, if you have more questions, please let me know.

Paul K, Esq. :

Good afternoon, it has been three days and I was wondering if you had more questions. This session is still showing "Open" so I need to close it out so that our slate is clear of unresolved cases. Please let me know if you need anything else.

Paul K, Esq. :

Have a great week!!!

Paul K, Esq., Attorney
Category: Bankruptcy Law
Satisfied Customers: 141
Experience: 10 years Exp., Great customer service, Prompt responses.
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Paul K, Esq.
Paul K, Esq.
Bankruptcy Lawyer
141 Satisfied Customers
10 years Exp., Great customer service, Prompt responses.