Legal Question in Bankruptcy in Kentucky

This may seem like a simple question, but is quite complicated. Assuming you are looking at personal bankruptcy in the near future, your attempt to "protect the business" by spinning it off into a Sub-S corporation (or other business entity) could cause more problems that it fixes.

The transaction creating the off-shoot entity will have to be disclosed as part of the personal bankruptcy filing. That will alert the bankruptcy trustee to view the business as a potential source of assets to marshal, take his cut of the proceeds, and then distribute the remainder pro rata to your unsecured creditors. This is not the best result for you, nor is it the result you are seeking.

The essential problem is that you see the dba as a separate entity, while the law views it as an extension of your personal assets and liabilities.

If the possible bankruptcy filing is at least a year away, creating a new business entity makes more sense, but even then is not without some risk due to the four year statute of limitations on fraudulent transfers in Kentucky.

Ultimately, the real answer is something you may have been trying to avoid: hire and pay a lawyer for a comprehensive review of your assets and liabilities, and then prepare and execute a plan which resolves your short term financial situation while at the same time setting up your business and other arrangements in a way which best protects you from future claims.

Find a lawyer who practices in this area with whom you are comfortable and then start working on a plan. Good luck!

Very simply, your business is an asset. Even if it were an S-Corp, you would have to give a value to the stock and the assets would be figured into that. You need to come in and talk to an attorney because your situation goes beyond what can be done on a website.