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JoeLawyer, Attorney
Category: Bankruptcy Law
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Experience:  Attorney in the practice of Bankruptcy Law since 1996
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Can I sell my shares in my S Corporation to a newly formed

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Can I sell my shares in my S Corporation to a newly formed company that I own and get away with not paying the unsecured creditors?
Submitted: 7 years ago.
Category: Bankruptcy Law
Expert:  JoeLawyer replied 7 years ago.
Unlikely. You normally have to report such transfers if they occur within 2 years before you file your bankruptcy petition in #10 of the Statement of Financial Affairs, which is part of your bankruptcy petition. If you do not receive fair market value from the buyer, the Bankruptcy Court will look very suspiciously at the transaction. If you - or a company you own - are also the buyer, I think this will raise a major red flag. If you simply don't report the transaction and the Court finds out, it might become a criminal prosecution (and the United States Trustee, a department of the United States Department of Justice, is who oversees bankruptcy cases and they don't miss much).

You cannot wait until the case is filed to do the transaction until or unless the Bankruptcy Court abandons its interest in the corporate stock, and if the court is not interested in liquidating the stock then there's no reason to do the transction anyway.

Also I will add that most States let creditors go back even further than the 2 year reporting period the Bankruptcy Code requires to avoid fraudulent transfers under the State's fraudulent transfer act, so sometimes even waiting 2 years after a transaction before you file is not foolproof. Nevada has a 4 year look-back (see HERE).

So, such a transaction either before or after the case is filed would probably cause much more harm then good, potentially resulting in criminal actions. Trust me - the Bankruptcy Court has seen EVERYTHING and is fooled by NOTHING. If you go in with clean hands, you can usually get a discharge and a fresh start. If you go in trying to manipulate the system, you normally end up regretting it.

I'm not saying this to lecture you or anything, but because I have seen people try this kind of stuff and crash and burn, and I don't want to see you get in trouble to save some money - it's just not worth it my friend.

Good luck!


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