Or get an order allowing continuing operation.
My addition to the litany: bring a motion to abandon.
Why order shutdown?
The debtor was a partner with his parents in a restaurant that they wanted to continue to run.
Yet somehow, no one had considered the position of the bankruptcy trustee who is charged with managing the assets of the business when one partner filed Chapter 7.
Chapter 7 is, after all, a liquidation proceeding.
Continued operation involves continued expense, continued regulatory compliance, continued interface with the consuming public. All elements that could go wrong from the perspective of the trustee, charged with preserving assets.
It is hard to see that continuing operations is likely to benefit the creditors of the bankrupt partner.
Operation in Chapter 7
A trustee can continue operations. Note the limitations in the statute:
The court may authorize the trustee to operate the business of the debtor for a limited period, if such operation is in the best interest of the estate and consistent with the orderly liquidation of the estate.
I see “may”, the need for court authorization, “limited period” and “best interest” of the estate. Lots of qualifiers.
During the 10 years I represented Chapter 7 trustees, I can recall one occasion where we operated a hotel until the pending advantageous sale could close.
Debtor’s counsel with the restaurant in the trustee’s crosshairs could consider bringing a motion to abandon the estate’s interest in the restaurant. We earlier reported here the willingness of my local trustee’s to cooperate with an expedited motion.
The supporting declarations and the approach to the trustee has to show that the business is adequately insured; provide proof of the value of the business or its assets; and address how operations will be funded while the motion is noticed out.
All of that is time consuming and risks delays or resistance on the part of the trustee or the judge.
The other option is to convert to Chapter 13.
Chapter 13 explicitly allows continuing operation of a business. Operation is the default rather than the exception.
(b) Unless the court orders otherwise, a debtor engaged in business may operate the business of the debtor and, subject to any limitations on a trustee under sections 363(c)and 364 of this title and to such limitations or conditions as the court prescribes, shall have, exclusive of the trustee, the rights and powers of the trustee under such sections.
In my office, the rule for clients with unincorporated businesses that they expect to continue to run: incorporate before filing Chapter 7 or file 13.
Actually, I have pitched to clients that resist those choices: pay me twice the quoted cost of a 7 and we will bring the immediate motion to abandon, with the client assuming the risks that all does not go quickly.
Plan ahead and counsel your clients so you aren’t on the receiving end of a directive to shut the doors.