This is Roger Ghai and I practice bankruptcy law on the Kennesaw, Acworth, Marietta areas. I wanted to talk this morning about the pitfalls of filing for Chapter 7 bankruptcy personally, as a small business owner. This is the danger. Let’s say, for example, you’ve got a small business, could be a restaurant, could be a mechanic place, could be whatever it is and the business is failing and you think you need to file a personal bankruptcy. The danger is this, that many times in my experience, I find that small business owners frequently, not always, but frequently do not respect the segregation rules of the corporation. What do I mean by that? What I mean specifically is this, that you’re operating a small business. You are incorporated, but you’re doing a lot of no-nos. Those no-nos can include paying, for example, groceries from your corporate account, paying your mortgage payment from your corporate account, paying CVS Pharmacy from your corporate account, paying health expenses, depending on the situation, from your corporate account.
Those are a lot of no-nos. If you do do those things and you file a Chapter 7 bankruptcy case personally, you could be potentially in huge trouble. First of all, the Chapter 7 bankruptcy trustee can require that you produce all of your corporate bank statements for six months before you file the case. Normally what I will do is if somebody owns a small business and they want to file not corporate business bankruptcy, but they want to file a personal bankruptcy is we always require that the client gets me the last six months of their bank statements. If they haven’t done that, they’ve done no-nos, they’ve paid their car payments, not necessarily car payments, but a lot of times we see people paying their rent payment or their mortgage payment, or a video rental payments out of the corporate account, they pay the pharmacy out of the corporate account.
Kroger’s, Target, these sorts of personal bills that they’re paying out of the corporate account. Then we don’t file a Chapter 7 bankruptcy case for them at that point in time, because if we do so, number one, the client is going to waste a lot of money on attorney fees, probably $2,000 and including the filing fee 2,000-2,100, and then at the end of the day, the result is going to be terrible for the client. It will be a failure. It will be totally unsuccessful and it will be an aggravation for the client as well as actually the attorney. That’s the reason that we go ahead and we look very closely when we have a client who has a small business and they want to file. Now, I don’t want to give the impression that you can never file as a small business owner.
What I am trying to convey is that if you’ve had a failed business and you’ve not really respected the corporate identity by paying your personal bills from the corporation, then the strategy in that case changes. In that case, you can still file, but you just probably have to wait six months and you have to make sure that you don’t, if the business continues, that you do not pay any of your personal bills from the corporate account. This is a major red flag that we see in these cases. I will tell you that an inexperienced bankruptcy lawyer sometimes will overlook this and it’s to the detriment of the client, and there’s really no good reason to do that. It really just causes a host of problems with the bankruptcy court, the bankruptcy trustee, and so forth.
When we file these bankruptcy cases for people, the goal is to take in the attorney fees to have the client pay the filing fee, but to get a successful result for the client. If you have questions about whether you should file a bankruptcy case or not, and you are a small business owner, please feel free to contact my office at (770) 792-1000.