Own a business? Filing a Chapter 7 bankruptcy? You may need to file a Motion to Compel Abandonment. This will let you keep operating your business while you are in bankruptcy.
The Trouble with Businesses and Chapter 7 Bankruptcy
When a person declares Chapter 7 bankruptcy, everything they own is temporarily “owned” by the bankruptcy estate. If a bankruptcy filer owns a business, the business is included in that estate.
The bankruptcy estate is administered by a bankruptcy trustee. The trustee is liable for acts of the business while it is operating during bankruptcy. Most trustee’s don’t like this liability.
In fact, not all bankruptcy trustees are comfortable with the bankruptcy filer running a business. Some of these trustees may demand that the bankruptcy filer stop operating their business during their case. This is not a very good outcome for the bankruptcy filer.
Motion to Compel Abandonment
One option for a bankruptcy filer in this situation is to request that the court “abandon” the business so that the trustee no longer owns it. If successful, the trustee won’t be able to demand that the bankruptcy filer cease business operations during the bankruptcy.
The Motion to Compel Abandonment is easy to understand. The bankruptcy filer informs the court that the business doesn’t have any liquidation value (if true) and requests that the court abandon the property back to the debtor.
Because the business doesn’t have any liquidation value, the court will determine that it is not an asset that requires administration by the trustee.
In bankruptcy terms, the court will determine that the business has an “inconsequential value” to the estate. The court will then order the business abandoned.
Not all businesses will require an abandonment motion in a Chapter 7 bankruptcy. Consult with an experienced bankruptcy attorney if you have a business and are considering declaring a personal Chapter 7 bankruptcy.