Legal Question in Bankruptcy in California

Hang up from the internet already and make an appointment with a bankruptcy lawyer. And please don't ask your question a third time.

Any transfer of the business, whether by gift or sale, needs to be disclosed in the bankruptcy petition. Any transfer without payment of fair market value (an outright gift or sale for less than fair market value to a friend or family member particularly) means the trustee can claim it (set aside any transfer) for the estate and then liquidate the assets of the business and distribute the proceeds to the creditors. If the transfer is for the fair price of the business then the proceeds are assets you own that need to be disclosed and some or all of the amount may be exempt (removed from the bankruptcy estate) but that will depend on the amount involved. Any amount that you cannot exempt remains in the bankruptcy estate for distribution to your creditors. The debts, both personal and business (assuming a sole proprietorship) will be discharged but the creditors will be paid whatever you cannot exempt from the proceeds of the sale of the business assets.

The worst thing you can do is to "gift" the busines to anyone. The trustee can take the assets (set aside the transfer) and the exemption will be lost so everything will be gone to pay creditors. Also, gifting something before bankruptcy may be interpreted as a fraudulent act or otherwise improper and you might be denied a discharge. Depending on the circumstances even more serious consequences are possible so watch out.

You can go ahead and sell the business for fair market value, place the money in a bank account in your name, report the account balance as the proceeds of the business and take advantage of the exemptions available to protect some or all of the account funds. Make sure you can prove you received fair market value for the business, particularly if you are dealing with a friend or family member.

Depending on the value of the business and the amount of the debts bankruptcy might not be the best choice. You really need to consult with an attorney experienced in bankruptcy law to determine the best solution. The decision on whether or not to sell the business should not be make because of the bankruptcy. You might be able to discharge some of the debts and continue to operate the business in Chapter 13. In Chapter 7 the business will have to be liquidated unless it is a self employment situation (no employees). You do not give any details on the type of business involved. Don't even think about doing anything without consulting with an attorney first. There is a lot of things that can be done to protect your property before you file for bankruptcy and there is very little that can be done after..... not to mention the trouble you will be in if you do not act legally, honestly and truthfully.