Sole Proprietorships In Chapter 7 In Trustee’s Cross Hairs

Why would a Chapter 7 trustee shut down a proprietorship business with no value? That question comes up again and again from newish bankruptcy lawyers who can't imagine that a trustee would demand the closing of the debtor's business. After all, goes the argument, the debtor needs to make a living and the business has no non-exempt value. The trustee's  insistance on closing the business is more understandable when you hear this nightmare. The postman, the pit bull and the priority claim Our Chapter 11 debtor had a rental property leased to a tenant with a pair of large dogs.  During the pendency of the case, the dogs bit the postman. The postman sued the debtor in possession along with the tenant on the grounds that the owner was liable for injury incurred on the property. Assuming a verdict in favor of the postman, not only is the bankruptcy estate liable, but the claim is a cost of administration, payable ahead of the prepetition … [Continue reading...]