Motion to Compel the Trustee to
Abandon Debtor’s Business from
the Chapter 7 Bankruptcy Estate
By Gary Ray Fraley, Esq.
CA State Bar Board of Legal Specialization
Certified Bankruptcy Law Specialist
Sacramento, California
(This article is part of “Countdown of
the Top 12 Malpractice Mistakes Made
by Bankruptcy Attorneys” ongoing
column)
problem is that the stock is not exempt
normally, except in a “wildcard”
exemption state and then only to the
extent of the available dollar limit.
Mistake #3: Not making a “Motion
to Compel the Trustee to Abandon
Debtor’s Business” from the Chapter 7
bankruptcy estate.
Now, let us look at the other alternative,
filing “Motion to Compel Abandonment
of Debtor’s Business.”
It is surprising how many times I have
seen attorneys post on various blogs
that they just had a how it feels to not
file a Motion to Compel the Trustee to
Abandon Debtor’s Business during a
bankruptcy.
Bankruptcy
Trustee
close
their
client’s business down and they do
not understand why that happened.
Clients are not particularly happy
with their bankruptcy attorney when
their business is shut down. That is
especially true when they were not
told that this might happen. This article
addresses this issue, and how to
reduce that risk.
One way would be to incorporate the
client’s business before filing a Chapter
7 Bankruptcy. However, that can leave
your client with a corporation that they
do not want, along with the issues that
come with having a Corporation. This
may not be an option. The second
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CONSUMER BANKRUPTCY JOURNAL
“Motion to Compel Abandonment
of Debtor’s Business.” During a
Bankruptcy And How it Works
Like the prior article about failing to
file a “Motion to Compel the Trustee
to Abandon Real Property” from
the bankruptcy estate, the “Motion
to Compel the Trustee to Abandon
Debtor’s Business” is basically the
same motion. However, this “Motion
to Compel Abandonment of Debtor’s
Business” is used for a very different
purpose.
The Motion to “Compel Abandonment
of Real Property” is to protect from
the Trustee taking increases in value
in the exempt home for the benefit
of creditors. The “Motion to Compel
Abandonment of Debtor’s Business” is
to allow the client to keep their business
open and operating.
In Chapter 13 bankruptcy, there are
specific provisions that allow the
Winter 2016
Debtor to run many types of sole
proprietorship businesses including
ones with inventory and employees.
In Chapter 7 bankruptcy, there is no
comparable provision.
If you read Chapter 11 U.S. Code § 721
– “Authorization to operate business,”
the code allows the Bankruptcy
Trustee, with Court Approval, to
temporarily operate a business. That is
so it can be liquidated as a business for
more money than the assets could be
sold for individually. That benefits the
bankruptcy estate and the creditors.
There is no provision in the Bankruptcy
Code that allows the Debtor to run a
business. In fact, there is no provision
that even allows the Bankruptcy Court
to even approve of the Debtor running
a business.
Of course, Bankruptcy Trustees are
not interested in running a business
such
as
landscaping,
cleaning
pools, janitorial services, hair styling,
bookkeeping, selling real estate,
practicing law and such. In fact, many
of the service businesses that sole
proprietors run require special licenses
that the trustee simply does not have
and cannot obtain. Most of these
service businesses require skills that
National Association of Consumer Bankruptcy Attorneys