Small Business Bankruptcy In Austin

The means test does not apply for determining whether you qualify to file a chapter 7 if more than half of the total debt you owe is non-consumer/business debt rather than consumer debt. In determining this, you have to include your mortgage, car loans, personal credit card debt and signature loans, and medical bills as consumer debt. Taxes are generally considered non-consumer debt. You also have to determine how much of the business debt you are personally liable for – either because you signed it personally or because you guaranteed it. If you are not personally liable for a debt of the business, then you can’t include it in the calculation of non-consumer/business debt. But landlords and franchises almost always require a personal guaranty from the owners.  If there is more than a year or two left on your business lease, this will often kick you over the 50% business debt requirement. If you have a franchise agreement, you are probably liable for buying a certain amount of supplies each month and for paying a certain amount for advertising over the term of the agreement. You include the total amount you would have to pay over the remaining term of the agreement when calculating your business debt. So don’t just assume you won’t qualify for a chapter 7 because you make a high salary. Call and let us do the math for you.

If the entity also files bankruptcy, then it will stop functioning on the date its bankruptcy case is filed. If only the individual owner files, the business does not necessarily have to stop operating, but often the practical reality is that the business will need to close because its troubles are the reasons for the owner’s need to file bankruptcy.

If you operated as a sole proprietorship (under your own name or a dba), then you will not necessarily have to stop operating that business, but you may lose assets necessary for operating that business.

You cannot transfer assets to your spouse, family or another business before filing bankruptcy in hopes of protecting them from the trustee unless you receive fair market value for the sale/transfer.

The answer depends on the facts of your situation and in large part on whether you or the business owns the asset(s) in question. Clients often assume that the business owns everything used in connection with the business. But often assets are acquired before the business is formed. For example, if you worked in construction or as a mechanic for years before opening your own business, you probably acquired tools and vehicles over those earlier years while you were working for someone else. If you did not sign a bill of sale or other paperwork transferring them to the business, then you still own then personally. Any tools, vehicles, computers or other assets that you acquired after you formed a separate entity may belong to you if you used personal funds or to the company if you used company funds to buy them. If you signed purchase agreements or other vendor agreements in the company name and used company funds, then they probably belong to the company. 

So, does the company own more money that the total value of all of its assets? If so, then those assets should be used to pay the company’s debts, not your personal debts. So the trustee in your bankruptcy case shouldn’t take them to pay your personal debts. If an asset like a vehicle has a lien against it for more than the value of the vehicle, then the trustee won’t take it because he won’t be able to get any money by selling it after he pays off the lien. Lenders would often prefer you to keep paying rather than surrender an asset. If you keep making the payments post-bankruptcy, lenders will often accept those payments and let you keep the assets.

If your business entity owns a domain name, trademark, patent, or other intellectual property, is there someone else out there that will buy it? The trustee want stuff that is relatively easy to turn into cash that he can distribute to your creditors. If no one will pay money for it, then the trustee is not interest. The same is true for your entity’s phone number. Patents often have to be registered in the name of individuals and then assigned to a company. Was it transferred to the company?  Did the operating agreement for the entity require you to transfer it to the company? And again, will someone be willing to pay to buy it?

You might be able to buy some of the assets of the old business from the trustee – if you can come up with the money and no one else is interested enough to bid higher for those same assets.

If you are a consultant or other business that provides advice or services and don’t sell products, then you may not have any assets that the trustee could seize. Although the trustee could in theory sell your customer list, if you have one, your relationship with your customers is not a tranferrable asset.  The trustee can’t make your customers do business with anyone who might buy your customer list or your business. So it is unlikely to have any value to someone else.

Yes. Legally you can form and begin operating a new business almost immediately after filing bankruptcy – even before your bankruptcy case is closed. However, if you or the entity owes taxes or fees to the Texas Comptroller or the Texas Secretary of State, those office may decline to allow you to register a new business entity unless you pay those taxes and fees. You are likely to also have difficulty obtaining credit for your new business shortly after filing bankruptcy. The SBA will not provide a loan within two years after the dated a discharge is entered a bankruptcy (not from the date the petition was filed, but the date the discharge order was entered). 

It may make sense for your spouse to start a business if his or her financial condition is stronger than yours. Your spouse can hire you as an employee. However, this means your spouse will be liable if this business runs into financial problems in the future.

What do you want to do? Get your stuff out and leave? Keep the lease and work out a deal?

Bring payments current. You will need to review your lease, which may give you the right to bring your payments current. But this may mean more than just making up those past due rent payments. The landlord will probably demand that you pay any expenses the landlord has incurred to lock you out and start eviction proceedings.

Try to negotiate with the landlord. Does the landlord really want you out? This will depend on how ticked off he is, whether you can make some payment, and whether or not he can lease the premises out to someone else for more money. If the current market rate is higher than what you are obligated to pay under the lease, the landlord will be less likely to negotiate. Does another tenant want to expand into your space? If so, the landlord may be willing to sign a release, releasing you from all future liability under the lease. Will it cost the landlord a lot to move your stuff out of the space? Some landlords might be willing to let you come in and move your stuff out. Especially if someone else is willing to take over your space and assume your obligations under the lease.

If you want out, then you can file bankruptcy. In a chapter 7, you can discharge all of your past and future obligations under your lease.

Maybe. This will depend on the situation and the terms of the non-compete.

If someone else is going to continue operating the business, then they are likely to try to enforce your contractual obligation not to compete. If he sues you to make you stop competing, a court will have to determine whether the obligation not to compete is reasonable in scope – geographic and as to time. If you are never allowed to compete – a court is likely to find that unreasonable and unenforceable. If you are barred from competing for five years, a court is more likely to find that reasonable and enforceable. Are you limited to not competing in the entire state of Texas or only within a 20 mile radius? The limit must be reasonable considering the type of business.

Even if the terms seem reasonable, the continuing owner will have to pay to sue you. What are his damages and how much will it cost him to enforce the agreement? How much will it cost you to fight him? Personal liability for a past violation may dischargeable in a bankruptcy unless it is found that your violation was willful and malicious – you knew you were violating the agreement, intended to violate the agreement, and intended to hurt his business by competing. However, if the terms of the non-compete are found reasonable, the other guy is likely to get an injunction to stop you from competing in the future and you may get stuck with the obligation to pay his attorney’s fees. If you violate that injunction, you can be found in contempt and any damages following that injunction will not be dischargeable in bankruptcy.

What if two or more people are in business together and their partnership or LLC operating agreement contains a reciprocal non-compete clause?  They decide to split up with neither continuing to operate the old business, so both are going to need new jobs. They generally won’t try to enforce the non-compete against each other. But it is helpful to try to work this out as part of your split to avoid it becoming an issue later.