Selling Or Closing Your Business Before Filing Bankruptcy

Many self-employed or small business owners facing financial difficulties and considering bankruptcy may decide to close up shop or sell the business to cut their losses and reduce stress. But depending on when the business owner files for bankruptcy the simple action of selling or closing a business before filing for bankruptcy may be seen as fraud by the bankruptcy court.

For example, if you have a cleaning business and close shop a few months before filing bankruptcy by selling or “giving” the clients, equipment or contracts away to someone else, that action will be viewed as an asset transfer and could fall under the category of fraud. The reason is simple. The business assets that you sold or gave away might have become property of the bankruptcy estate and might have been liquidated to repay creditors.

If you “sell” or “giveaway” business assets before filing for bankruptcy the bankruptcy trustee may view your actions as a fraudulent attempt to prevent creditors from being repaid using those assets. Before closing or selling your business speak with abankruptcy attorney about the consequences during a Chapter 7 or Chapter 13bankruptcy.