For Texas business owners considering a Chapter 7 bankruptcy, you may be wondering if you should go ahead and sell off your business assets in order to close out your business prior to filing. This can be a complicated question to answer and one that should be directed towards a Texas bankruptcy attorney before taking any action. As a sole proprietor, your personal assets are intimately connected to the business and any debt that you have personally guaranteed can be included in your Chapter 7 bankruptcy. However, what about the business fixtures and assets such as machinery or office furniture? Take care when selling business assets prior to Chapter 7 bankruptcy as you could be opening yourself to unnecessary headaches or jeopardizing your Chapter 7 discharge.
Texas Bankruptcy Exemptions
Texas bankruptcy exemptions allow fillers to protect certain property from being included in your bankruptcy estate which is sold or liquidated by the bankruptcy trustee in an effort to pay your creditors back at least a portion of what you owe. When you filed Chapter 7 bankruptcy in Dallas, TX, you have the option of choosing between the set of Texas bankruptcy exemptions or the federal bankruptcy exemptions. Which type of exemptions you choose could have a dramatic effect on your ability to keep property during your bankruptcy, therefore it’s important that your bankruptcy lawyer explains these to you.
Transferring Assets prior to Bankruptcy the Right Way
You can only transfer or sell property which is exempt in bankruptcy. Because creditors would not have access to these assets in the first place, you won’t run afoul with the bankruptcy court or bankruptcy trustee when selling the exempt property before you file for Chapter 7. Additionally, you must attempt to sell your property at fair market value and keep careful track of how you spend the proceeds. If you, for example, sell all your business furniture to a family member for pennies on the dollar, the bankruptcy trustee may have reason to believe that this is as a fraudulent conveyance.
Favored Creditors in Bankruptcy
While you are allowed to sell assets before bankruptcy, it must be done in the proper manner. For example, if you sell your business furniture to a friend or family for well below market value, the bankruptcy trustee may be able to recall the sell to add the assets you sold to your Chapter 7 bankruptcy estate for liquidation in order to pay back creditors. This is the best case scenario if you sell business assets prior to Chapter 7 bankruptcy that aren’t exempt or for less than market value. Worse case? You could have your entire bankruptcy case dismissed or even worse, face criminal charges for bankruptcy fraud.
Dallas Bankruptcy Attorney
Whether you live in Dallas or any other location in Texas, it is highly advisable to consult a bankruptcy lawyer for legal guidance on selling your property before a bankruptcy. A knowledgeable bankruptcy attorney can help you prevent fraudulent transfers and ensure that both personally guaranteed business debt, as well as, some types of personal debt are eliminated at the conclusion of the Chapter 7 bankruptcy process.