Question about bussiness filing bankruptcy.and Increasingly tight bankruptcy laws take an increasingly dim view of attempts to shield assets shortly before filing.

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Q. My husband is part owner in a general partnership company (construction). We are (personally) at a point that we need to file chapter 7 bankruptcy. He wants to incorporate his business to protect his business assets from being included in the bankruptcy. Is this possible or would it be pointless since when they got all of these assets they were just a partnership and are both personally on the contracts/notes for the equipment? He refuses to file if any of his business assets would be at risk. At this point I don't really care because it is because of this business that we are in this predicament of needing to file.

A. You can set up a corporation to protect a business. In this case, there are two issues in doing that: 1) if you do it and then file Chapter 7, the court will most likely undo the corporation stating that it was done solely to avoid paying creditors, which is illegal. 2) if this were done all legal like, a corporation would be formed, and the corporation would buy the business. That means your husband would get the profits from the sale. Now, he might have to turn around and invest that money right back in to cover the buyout costs. The court would consider that money to be a preference payment, and pull it back. That means that your husband wouldn't have the money to buy back in, so he would be out. In all fairness, the business is an asset. You should sell it to raise money to pay your bills. If you file chapter 7, the courts will most likely make you sell it and distribute the funds among your creditors. That is only fair. Your alternative would be to consider a bankruptcy payment plan. The only problem there is that most of these fail anyway. if what your husband wants to do could possibly work, everybody would do it and you'd see lawyer ads stating, "Incorporate now to save your assets from bankruptcy". The courts aren't fools.

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