Chapter 7 trustees and company shares

[ddutke]

What is the name of your state?
NH

Hi,

I attempted to file chapter 7 a few weeks ago but was advised against it because... I have a contractor agreement with a medical startup company who I designed and wrote software for. I am not a co-owner, only a contractor. A clause in my contract entitles me to 8% of sale price when company sells. Attorney told me if I filed chapter 7 then owners of company would be approached by bankruptcy trustees and for a fee of 5K the company would be released from the agreement and my 8% would be lost to me and acquired by owners when sale takes place.

Is this true? And if so, where can I find documentation to that effect?

Thank you in advance for your help!

 

[LdiJ]

What is the name of your state?
NH

Hi,

I attempted to file chapter 7 a few weeks ago but was advised against it because... I have a contractor agreement with a medical startup company who I designed and wrote software for. I am not a co-owner, only a contractor. A clause in my contract entitles me to 8% of sale price when company sells. Attorney told me if I filed chapter 7 then owners of company would be approached by bankruptcy trustees and for a fee of 5K the company would be released from the agreement and my 8% would be lost to me and acquired by owners when sale takes place.

Is this true? And if so, where can I find documentation to that effect?

Thank you in advance for your help!

Theoretically its true that in a chapter 7 the trustee could negotiate the sale of your assets to go towards your debt (assets in excess of your exclusions). Whether a trustee would go after that particular kind of asset is debatable, I think because its worth is nebulous. I do not see how it could be automatically defined as 5k. However its possible that your attorney was using 5k as just an example.

 

[ddutke]

The attorney was a bit pompous. I asked him about 5K and he said it’s just the accepted standard that most companies are willing to scrape up. And to your other point... If the owners of the company did aquire my assets and know nothing of my creditors then what’s the point? The attorney said my 8% would be given to the owners period.
Thanks for your fast reply!

 

[ddutke]

Theoretically its true that in a chapter 7 the trustee could negotiate the sale of your assets to go towards your debt (assets in excess of your exclusions). Whether a trustee would go after that particular kind of asset is debatable, I think because its worth is nebulous. I do not see how it could be automatically defined as 5k. However its possible that your attorney was using 5k as just an example.

 

[ddutke]

Regarding the 5K again... The attorney had no idea what 8% would mean in dollars. He said it was the same for 100K or 100 mil.

 

[LdiJ]

The attorney was a bit pompous. I asked him about 5K and he said it’s just the accepted standard that most companies are willing to scrape up. And to your other point... If the owners of the company did aquire my assets and know nothing of my creditors then what’s the point? The attorney said my 8% would be given to the owners period.
Thanks for your fast reply!

Its not that your 8% would be "given" to the owners, but rather that your potential, future 8% would be sold back to the owners of the company for whatever the trustee could negotiate. Again, that is IF the trustee would go after such a nebulous asset.

 

[ddutke]

I understand what you’re saying. So according to the attorney I spoke with, the 8% would be sold to the company for a flat 5K. Sure all that would go to the trustees and not the creditors. 5K seems so arbitrary but the attorney insisted.

You’ve been more than helpful! Thanks!

 

[ddutke]

Its not that your 8% would be "given" to the owners, but rather that your potential, future 8% would be sold back to the owners of the company for whatever the trustee could negotiate. Again, that is IF the trustee would go after such a nebulous asset.

Is it possible the Trustees would levy the 8% and wait for company to sell? Can they do that? Or do they have to get the company to pay the infamous 5K? Bottom line... if I trust the owners of the company not to pay the 5K am I safe?

 

[LdiJ]

Is it possible the Trustees would levy the 8% and wait for company to sell? Can they do that? Or do they have to get the company to pay the infamous 5K? Bottom line... if I trust the owners of the company not to pay the 5K am I safe?

If there is nobody interested in buying the potential 8% then the trustee cannot sell it...and no, the trustee could not just hold it for an endless amount of time.

 

[ddutke]

Or if the company bought it for 5K or whatever then just gave it back to me???

If there is nobody interested in buying the potential 8% then the trustee cannot sell it...and no, the trustee could not just hold it for an endless amount of time.

perfect! Thanks! You don’t do Chapter 7s do you?

 

[despritfreya]

Just so that you understand. . .

If you file bk, your right to a percentage of the sale price is an asset of the bk estate and pursuant to 11 USC 541.

In the context of a Chapter 7 it does not matter what you think the asset is worth. Unless you can find an exemption that will protect the asset, the Trustee has the absolute right to sell it. He/she will sell it to anyone who wishes to buy it. That could be you. It could be your employer. It could be John Doe. If there is someone willing to put up $$ for the right to 8% of the sale price (regardless of if or when such sale would happen) then the asset will be sold.

Your attorney suggested a $5,000.00 sale price since it is a nice round number for the Trustee to work with. He did not tell you that $5,000.00 was a final number.

Your employer, if approached, may offer something less than $5k, something more, or nothing. Whatever is offered, the Chapter 7 Trustee has to decide if the offer should be taken "as is" or used as an opening bid in an effort to find a higher and better offer. The Trustee’s job is to maximize the recovery for the creditors.

If you do not want to risk the loss of the asset you do not file Chapter 7. Maybe a Chapter 13 will work. If you do not care about the asset then the Chapter 7 might be the way to go. You just must understand that once you file Chapter 7 you lose control over any asset that is not protected by an allowed exemption.

Des.

 

[ddutke]

Des,

It's crystal clear now. Thanks for your detailed explanation. Now I have to figure out what to do with what's soon to be the worse credit report in history. Here's hoping the sale happens soon...

Thanks again. Have a great weekend!

 

[HRZ]

I don't know much about bankruptcy but a right to some share of some uncertain future event at an uncertain date, if at all, may have most dubious market value .

 

[doucar]

Its worth exactly what the Trustee can get for it and you would be surprise how resourceful a long time Trustee is with his/her contacts and what they are willing to buy.