Bankruptcy Law Questions? Ask a Bankruptcy Lawyer.
Hello, and thank you for contacting Just Answer. My name is Adam, I am a bankruptcy law professional, and I look forward to answering your question this afternoon.
Generally, when someone files for chapter 7 bankruptcy the only property that a bankruptcy trustee can look to seize is property or assets that are owned by the individual at the time of the bankruptcy filing, there are limited exceptions to this, including inheritance and tax returns, but they generally do not include business assets, particularly those assets held by a separate legal entity.
Now, having said that, if the business is formed before the bankruptcy is filed, and this person has an interest in the business, then theoretically the bankruptcy could pursue that interest if there is value in it. As such, it is generally a good idea, in such a situation, to wait at least until the bankruptcy has been filed to form the company (particularly if it will be valuable or have valuable assets), and better if possible to wait until after the bankruptcy case is closed and the debt discharged.
While generally business assets, particularly those held by a separate legal entity such as an LLC or corporation, are not subject to seizure in bankruptcy there are exceptions to this, and so anyone going in to business with someone who is about to or is in the process of filing for chapter 7 bankruptcy is best suited by caution.
Ideally, this person will be working with a bankruptcy attorney to make sure that all assets, including any interest in a business, are as protected as possible in a bankruptcy. In addition, in forming a business with someone who is about to file or is in the process of a bankruptcy, it is prudent to have the advice of an attorney in creating the business to make sure that the bankruptcy will not have any negative effect on the business.
If you do not have an attorney for the business (or your associate does not have an attorney for the bankruptcy), it would be wise to consult with someone in your part of Florida in person and in confidence. The Florida State Bar Association has a referral source at:
So, in short, while going in to business with someone that has already filed for chapter bankruptcy should not pose too many long term problems, there are potential pit falls in the short term, so waiting until the bankruptcy case is closed, or at least consulting with an attorney first, is prudent.
I hope this helps, and let me know if you have any follow up questions or need clarification of anything I have said (never be afraid to ask for clarification!). Otherwise, please remember to RATE my answer so that I can receive credit for my work.