This information is courtesy Richard J. Welt, Attorney at Law with McFerran & Burns, P.S., Practicing Real Estate Law in Western Washington since 1986. Contact: (253) 284-3811 or www.mbs-law.com
Bankruptcy for Small Business Owners
Filing bankruptcy if you have an interest in a corporation or a Limited Liability Company requires some extra work for you and your bankruptcy lawyer. Preparing an accurate balance sheet listing the company’s assets and debts is a critically important part of this process.
Keep in mind that just because you file bankruptcy doesn’t mean that your Limited Liability Company or corporation should file bankruptcy. You are not the company, and the company is not you. Your Limited Liability Company or corporation is a separate entity under the law.
And this leads us to another issue…
While it is a separate entity, your company is an asset that must be assigned a value for purposes of a bankruptcy just like other assets (cars, bank accounts, homes, etc.). Your bankruptcy estate consists of all your “legal and equitable interests.” This means everything, so you must list your interest in your company in your bankruptcy.
What’s it worth?
This is where the balance sheet comes in. Let’s say you are the sole owner of a company called Anytown Real Estate, L.L.C. Your bankruptcy lawyer will need a list of assets and liabilities (debts) of Anytown Real Estate, L.L.C.. It might be something like this:
4 Computers and Peripherals: $1,250
Accounts Receivable: $10,000
Payroll Taxes: $2,000
Credit Lines: $15,000
Company Credit Card: $10,000
Total Liabilities: $27,000
This tells us that liabilities exceed assets by a significant margin. Your bankruptcy lawyer would then list the assets and liabilities of the company in your bankruptcy and state that your interest in Anytown Real Estate, L.L.C. has no net value because the liabilities exceed the assets.
Your lawyer needs YOUR help to do this!
Your attorney doesn’t magically know the assets and liabilities of your company. He needs your help with this. In fact, even your accountant won’t have all of this information. So it’s important that you understand why this information is needed and that only YOU can supply it. Don’t expect your lawyer to make up this information. It must be accurate! Your bankruptcy trustee will ask you how you valued your company, and if you can’t explain how you determined the value, this may hurt your case.
But what about my IBM stock?
Note that if you own publicly traded stock, this doesn’t apply. For example, you must list your interest in IBM, but all you need to do is know how many shares you own on the date you file bankruptcy. If you file today and own 10 shares of IBM, we look up the price at which IBM is selling and simply multiply that price by the number of shares.
Today, IBM is trading at $146.76. 10 shares times $146.76 is $1,467.60. It’s that easy.
Doing a balance sheet for your bankruptcy attorney is an essential step in preparing to file bankruptcy. The other step is finding out how much profit or loss the company is generating during (1) the six calendar months prior to your bankruptcy filing and (2) for the year-to-date when you file. Next week I will discuss the process of creating these P&Ls and why they are important.
Understanding these concepts is essential to a successful outcome in your bankruptcy case.
At McFerran and Burns, P.S., we help consumers and small business owners with a large variety of legal issues including bankruptcy. Consultations with one of our experienced attorneys can be scheduled at any of our five Puget Sound offices. Bankruptcy consultations are free. Consultations on other matters are available at reasonable hourly rates, and “distressed homeowner” consultations are still only $150.00.
Call us at 253-284-3838, Option 1 to schedule an appointment in Tacoma, Kent, Silverdale, Seattle (Northgate) or Everett.
Richard J. Welt
Attorney at Law
McFerran & Burns, P.S.
Phone: (253) 284-3811
Fax: (253) 284-3855