Riverside Bankruptcy Trustee Robert Whitmore
Debtor files bankruptcy. Debtor has a corporation. The corporation is insolvent meaning the corporation owes more in liabilities than the corporation is worth. The corporation is operating, but at a loss. The debtor is the sole shareholder of the business. On the debtor’s schedule B, the attorney has listed the value of the shares of the corporation as minimal.
At the meeting of creditors, Chapter 7 Trustee Riverside Trustee Robert Whitmore asked the debtor if he loaned money to the corporation? The Debtor said he loaned over $50,000 to the corporation. The Trustee asked the attorney why this loan was not listed in the bankruptcy petition as an asset on schedule B? The reason being that the corporation owed the debtor $50,000? The attorney did not have an answer. Trustee said the loan was reflected in the personal tax return and no mention of the loan to the corporation was mentioned in the petition as a potential asset for the bankruptcy estate.
Trustee said he wanted more information on the loans and to see the books and records of the corporation, even though the corporation was not in bankruptcy. The matter was continued by Chapter 7 Trustee Robert Whitmore and could be a potential asset case.
Practice Pointer #1
If the client has a corporation and wants to file a personal bankruptcy, the attorney and debtor have to list the shares of the corporation in Schedule “B” and should be exempted on Schedule “C”, if they can be exempted. This practice alerts the attorney to the connection between the personal bankruptcy and the corporation. The disclosure should raise a red flag in the attorney’s mind as now the business may be exposed.
Practice Pointer #2
If the client has a corporation, ask the client if he personally lent the corporation money.
That loan could be property of the personal bankruptcy and may cause a problem for the corporation when the Chapter 7 Bankruptcy Trustee like Robert Whitmore comes calling.