ABANDON DEBTOR’S BUSINESS
the Trustee does not have. I have never
seen a Bankruptcy Trustee that wanted
to clean a pool or mow a lawn.
Shortening Time and coordination with
the Bankruptcy Trustee to agree to the
release of the business.
The Bankruptcy Trustee also has
another concern. If the Bankruptcy
Trustee allows a business to continue
to operate in violation of bankruptcy law,
and the debtor harms someone while
running the business, the Bankruptcy
Trustee can be liable for the damages.
In some Districts, the Bankruptcy
Trustee might allow the Debtor to
operate long enough for the Motion
to Compel the Trustee to Abandon
Debtor’s
Business
heard.
My
experience is that you are more likely to
keep the business open if the business
follows some simple rules and you do
your job quickly.
Why Should You File a “Motion to
Compel Abandonment of Debtor’s
Business” During a Bankruptcy?
So, for many reasons, the Bankruptcy
Trustee has no reason or desire to
allow the Debtor to run the business.
Your client may have a business
that, if shut down for the length of the
bankruptcy case, would cease to exist.
Many businesses will lose their clients
if they cannot operate during that
period. As such, you need to act quickly
to keep the business open.
The first thing a Bankruptcy Trustee
wants to know is if there are any nonexempt assets in the business that you
want to keep open. One example of
that might be customer lists. Another
would be assumable leases that
are significantly below the market.
However, those are not common
issues. This is where you pick up the
phone and call the Trustee as soon as
possible.
Technically, you cannot keep a
Bankruptcy Trustee from shutting down
a sole proprietorship business. That
is something you should advise your
client in writing and get a signed waiver
that the client understands that is a
potential of happening.
You should have the list of the assets
of the business on your asset schedule
and show that the business assets
are exempt. I suggest that you have
the assets photographed by your
clients. Then send them by email to the
Bankruptcy Trustee.
The good news is that you can get the
business out of the bankruptcy estate
rather quickly if it has no value to the
bankruptcy estate. That is where a
“Motion to Compel Abandonment of the
Debtor’s Business” comes in.
The primary things that are typically
exempt are the debtor’s tools of trade.
Remember that inventory is not a tool
of the Debtor’s trade. However, in some
cases inventory may be exempted
using a sta te’s “wildcard exemptions.”
If the “assets” are not exempt, show the
Bankruptcy Trustee that the business
and assets have no value to the
Bankruptcy Estate.
In many Bankruptcy Court Districts
in the United States, a Bankruptcy
Trustee will always shut the business
down immediately. If they follow the
law, that is what they should do. Then
you need to file the “Motion to Compel
Abandonment of Debtor’s Business”
immediately. You should get it heard
as quickly as possible and get the
Bankruptcy Court Order abandoning
the business back to the Debtor so
they can reopen the doors of the
business. This may require an Order
personal liability if the Trustee allows
the business to stay open pending
the hearing on the Motion to Compel
Abandonment. I always have my
client obtain and have proof of
liability insurance. We offer to put the
Bankruptcy Trustee on the liability
insurance as an additional insured.
Other things that Bankruptcy Trustees
are going to want is for the business to:
Have no employees;
Be a service business;
Not be dealing
materials;
with
hazardous
Not operating an inherently dangerous
business;
Has all licenses and permits necessary
to legally operate the business; and
You immediately file a Motion to Compel
Abandonment of Debtor’s Business.
I have found that, at least in my
Bankruptcy District, if you do all of the
above, the Bankruptcy Trustees have
allowed the business to continue to
operate pending the Court hearing. In
fact, in many instances, the Bankruptcy
Trustees will actually file a Statement of
Non-opposition to my motion.
If you are prepared, and you have
prepared your client, this will typically
not be a huge problem. At worst, if
prepared, the business may be shut
down for 2-3 weeks. Often you may
not have the Bankruptcy Trustee shut
it down at all.
I also invite the Bankruptcy Trustee
to come and immediately inspect any
physical assets of the business so that
the Bankruptcy Trustee can see for
themselves that there is no value for
the Bankruptcy Estate.
The second thing the Bankruptcy
Trustee is concerned about is their
National Association of Consumer Bankruptcy Attorneys
Winter 2016
CONSUMER BANKRUPTCY JOURNAL
31