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  1. #1
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    Jun 2009
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    Default What Happens when You Don't Claim an Informal Asset During Chapter 7

    My question involves bankruptcy in the state of: California

    - - - - - -

    First time poster - I'd appreciate any advice you can provide.

    I am starting up a small auto parts business in San Francisco. I started the effort on my own a few months ago, with informal assistance (no DBA, Corp, etc. filed together) from a friend.

    We are no longer friends, and she is now trying to privately shake me down to a claim a portion of the business. The business is still not off the ground, so it's not really worth anything except for the roughly $50,000 I have put in so far.

    I have filed and activated a DBA (sole proprietorship) and also have a trademark pending on my business name.

    She just filed for chapter 7 bankruptcy for her own failed business. I reviewed her application, and she has not claimed her involvement in my business as one of her assets.

    My question is this: if she did not claim her involvement in my business as an asset during his chapter 7 case, does that kill her ability to later come back and claim it?

    Thanks very much.

  2. #2
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    Default Re: What Happens when You Don't Claim an Informal Asset During Chapter 7

    No, but it could affect the outcome of her bankruptcy or give the trustee or creditors grounds to go after her for fraud. It would be better in a sense if she had listed her shares and indicated that they had little or no value, as that would be a sworn statement that would be directly relevant to your dispute. I don't know what "with informal assistance (no DBA, Corp, etc. filed together)" means - are you stating what you did, or that you did nothing to formalize the business. Please explain. Also, don't you have a provision in your bylaws or operating agreement regarding what happens whaen a partner wants to quit or be bought out?

  3. #3
    Join Date
    Jun 2009
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    2

    Default Re: What Happens when You Don't Claim an Informal Asset During Chapter 7

    Thanks for the response.

    What I mean by informal assistance is this. She has knowledge and experience relevant to the type of business that I am trying to start, so she provided input, counsel, and coordinated some tasks for me as I got the business off the ground. This included paying for a few things (maybe around $1,000), like sample parts that I wanted to review and other like things. The reason she paid for them is because she got them through vendors she knew, and it was just easier to have it handled that way. We were good friends, and I just didn't think twice about it. Lesson learned.

    We never had a formal agreement, but I had hoped to be able to pay her for her services once things got going and I began realizing income from the investment, or to cut her in as a small equity partner at some point if that's what she wanted and if she continued to help. But like I said, we never formalized anything. Later, I filed a DBA as a sole proprietorship, and to date I have no formal papers or agreements or by-lwas in place with her spelling out our business relationship or identifying her as an equity participant in my business. All of the formal papers I do have (trademark, business bank accounts, DBA, etc.) Are all under my-name-only.

    It's interesting that you think it would have been better for her to list her claimed equity in my business as part of her assets. The review period for her Chapter 7 filing does not end for another few weeks, which means I still have an opportunity to present this information to her case trustee and ask for her claimed equity to be included in her filing as an asset. Would you recommend this? If so, I'm assuming this would impact my business structure pretty dramatically, as it would infer that she is a partner, even though that is not officially memorialized anywhere in writing so far. How would I determine how much her piece of the partnership is worth, especially since the business is not off the ground yet and is not generating any income?

    I hope my explanations clarify things. Thanks for your help.

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