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Dear Bankruptcy Adviser,

I want to file Chapter 7 bankruptcy for all my personal debts. Do I have to get my catering business involved? It is a small home-based business and isn’t very profitable. I don’t even pay myself. If I do have to involve the business, what would happen?

— Andre

Dear Andre,

This is an excellent question. Unfortunately, it is hard to answer for all 50 states. I will have to give a very general discussion because bankruptcy districts throughout the U.S. have different policies.

When you file bankruptcy, you create a “bankruptcy estate,” which includes all of your assets and liabilities. Everything — from the watch on your wrist to the car you drive to the house that your mother put your name on — is included in your estate. You can’t pick and choose assets you want to protect or debts you want to eliminate. All assets must be listed in your bankruptcy paperwork, and all creditors must be notified of your bankruptcy filing.

That means your business must be listed as an asset. You must show profit and loss from the business and list all business equipment and inventory.

In my bankruptcy district, you are allowed to continue operating your business when you file a personal Chapter 7 bankruptcy. In some districts, I have been informed that the business must cease operation. I’m not sure whether there are exceptions to this requirement. However, you do want an experienced attorney to tell you whether your district has such restrictions.

The trustee assigned by the court to administer your bankruptcy estate has the right to sell or liquidate your business in order to pay your creditors. In some cases, a business can be put on the market and sold. In others, business inventory can be seized and auctioned in order to pay estate creditors.

In a majority of cases, this does not occur. The business may be a small operation like yours, where the business has some customers but no outstanding catering contracts that can be sold or significant accounts receivable that can be seized.

In most businesses, the value is based on the owner’s established good will with clients and best efforts. You are the business and while the business could be sold, you cannot.

The short answer is that you must list the business in your bankruptcy paperwork, but you may be able to continue operating while your bankruptcy case works its way through the system.

Good luck!

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