Florida Bankruptcy Law Blog

Can A Debtor Operate His Wholly Owned Corporation After Filing Personal Ch. 7 Bankruptcy?

I recently filed a bankruptcy for a relatively wealthy individual. The debtor’s assets included 100% of the stock in an operating business with assets including real property. The question arose concerning the debtor’s operation of the business after filing personal bankruptcy. Since the debtor’s stock is part of the bankruptcy estate, does the trustee by virtue of owning all the stock assume control of the business. Or, can the debtor as president of the business operate the business including disposing of business assets after filing. In this case, the trustee took the position that the debtor’s bankruptcy did not act as a stay against business operations. Until the trustee as the new stockholder held a stockholder meeting to elect replacement officers and directors the trustee indicated that the debtor could continue normal business operations without violating the bankruptcy stay.

Exemption of Child Support Payments

A prospective bankruptcy debtor asked whether child support payments received from an ex-spouse were protected after they were deposited in the debtor’s checking account. I have never researched this issue, but I suspect the money is not exempt in bankruptcy. Future child support payments are not part of the bankruptcy estate. Child support money paid prior to filing and commingled with other banking funds probably could be claimed by the bankruptcy trustee. Florida statutes do exempt proceeds from particular assets as well as the asset itself. For example, proceeds from an annuity if deposited in a bank account remain protected after they are paid to the beneficiary. Proceeds from the sale of homestead is protected under certain conditions. Exempt wages remain protected in wage accounts at banks. Otherwise, proceeds from exempt assets lose their protected status once they are distributed to the debtor and deposited in bank accounts.

Getting Around the Means Test

I read an interesting post on Kevin Chern's bankruptcy blog about ways to circumvent the means test in filing Chapter 7 bankruptcy. Link: BAPCPA - Bankruptcy Abuse Prevention and Consumer Protection Act Resources for Attorneys, Lawyers, Law Firms : Bankruptcy Lawyers Blog. The blog post suggest that people who will fail the means test can first file a Chapter 13 bankruptcy, which does not require means testing, and after the 13 is started exercise their right to convert to Chapter 7 status. The Chapter 13 filing saves $70 in filing fees, although more legal fees would probably be involved in this more complicated path into Chapter 7.

Although there is some risk that a Chapter 13 could be dismissed with an injunction against refiling or conversion if deemed to be in bad faith, the author suggest that for debtors who fail the means test all attorneys should suggest conversion into Chapter 7 from Chapter 13 bankruptcy.