Can a President if a S-Corp. represent his own company without an attorney in federal bankruptcy court?
Tom
small business (such as a single person S-Corp) to represent his/her
own company in Federal Bankruptcy Court as a creditor against a debtor
who has filed Chapter 13 or Chapter 7 bankruptcy?
If so, what statute or rule allows this?
Thank you,
Tom
Stuart A. Bronstein
> Is there a statute or rule which prohibits or allows a President
> of a small business (such as a single person S-Corp) to
> represent his/her own company in Federal Bankruptcy Court as a
> creditor against a debtor who has filed Chapter 13 or Chapter 7
> bankruptcy?
The general rule is that corporations, even S-corporations, can be
represented only by lawyers, except in small claims court where the
law specifically allows someone other than a lawyer to appear for the
corporation.
I haven't run across this situation in the bankruptcy context, so I
don't know if the rule might be different.
Bob La Londe
news:b81997d5-e9b3-4d67...@n31g2000vbt.googlegroups.com...
I can see this is an issue for some. An S corp is often really small
business who has sought the liability protection of incorporating. They do
not necessarily have the funds to retain an attorney. Does this deny them
the rights of the courts? It does not for an individual.
Stuart A. Bronstein
> I can see this is an issue for some. An S corp is often really
> small business who has sought the liability protection of
> incorporating. They do not necessarily have the funds to retain
> an attorney. Does this deny them the rights of the courts? It
> does not for an individual.
For a small corporation that will be going out of business, filing
bankruptcy is a useless act. First of all the owners of the company
are generally not liable for the debts of the corporation. To the
extent they are liable, the corporation filing bankruptcy won't
affect the liability of the owners.
Additionally, corporations that file bankruptcy get liquidated -
their debts are not discharged. So why bother?
Bob La Londe
news:hfj5kg$lk$1...@news.eternal-september.org...
I am curious. Might a method of preventing this have been to assign the
debt to an individual prior to the bankruptcy proceeding? Perhaps as a
standard procedure anytime a client becomes more than XXX days past due? I
realize there is not much you can do as a small business after a client
declares bankruptcy except bend over.
Robert Bonomi
_Generally_, the only 'persons' who can appear in court proceedings are the
'person' themselves, or an attorney who has been admitted to the bar of the
court of jurisdiction. 'Small claims' court is the one notable exception to
this rule -- where lawyers are generally *forbidden* (usually the sole
exception is when _all_ the corporate officers are lawyers) from appearing
'on behalf of' another 'person'.
A corporation -- be it an S-corp or otherwise -- *is* a legal 'person' in
the eyes of the court (and 'the law', in general). Since this 'person'
cannot appear "in person" (to abuse a phrase :), they must be represented
by a qualified attorney.
Get a professional opinion on this, _before_ acting on it, but it might be
possible to side-step the lawyer issue by having an 'individual' -- e.g.,
the sole owner of the S-corp, buy the debt from the S-corp, and then that
individual could appear personally as the creditor.
Stuart A. Bronstein
>> I can see this is an issue for some. An S corp is often really
>> small business who has sought the liability protection of
>> incorporating. They do not necessarily have the funds to
>> retain an attorney. Does this deny them the rights of the
>> courts? It does not for an individual.
>
> I am curious. Might a method of preventing this have been to
> assign the debt to an individual prior to the bankruptcy
> proceeding?
You can't avoid a debt by assigning it to someone else. Neither
can an S-corporation.
In fact many supplies demand that the owners of small corporations
and LLC's give personal guarantees, so both the corporation and the
person are liable on the debt. To avoid the debt both the
individual and the corporation must declare bankruptcy.
(Ok, technically the corporation declaring bankruptcy is useless,
unless it wants to continue in business, in which case bankruptcy
gives it a forum for creating a plan to pay off the creditors over
time.)
Bob La Londe
news:Xns9CDB3C0973097s...@130.133.1.4...
> "Bob La Londe" <nos...@nospam.no> wrote:
>
>> I can see this is an issue for some. An S corp is often really
>> small business who has sought the liability protection of
>> incorporating. They do not necessarily have the funds to retain
>> an attorney. Does this deny them the rights of the courts? It
>> does not for an individual.
>
> For a small corporation that will be going out of business, filing
> bankruptcy is a useless act. First of all the owners of the company
> are generally not liable for the debts of the corporation. To the
> extent they are liable, the corporation filing bankruptcy won't
> affect the liability of the owners.
I think you misunderstood. The small S corp is the creditor not the debtor.
A creditor with large AR may not be able to afford to retain an attorney to
represent them to the bankruptcy court against their debtor. A percentage
of a court determined fraction of the amount owed may not interest an
attorney in doing the work with the court to collect, but it might make a
big difference to the survival of the S corp who is owed money by the
bankrupt party.
Robert Bonomi
Stuart A. Bronstein <spam...@lexregia.com> wrote:
>"Bob La Londe" <nos...@nospam.no> wrote:
>
>> I can see this is an issue for some. An S corp is often really
>> small business who has sought the liability protection of
>> incorporating. They do not necessarily have the funds to retain
>> an attorney. Does this deny them the rights of the courts? It
>> does not for an individual.
>
>For a small corporation that will be going out of business, filing
>bankruptcy is a useless act.
True, but *irrelevant* to the subject under discussion.
It was not about the small business _filing_ bankruptcy, but rather
that the business is a _creditor_ in *someone*else's* bankruptcy filing.
And who can represent said business before the court in _that_ legal
action. If the business doesn't have the money to hire counsel to
represent them in pursuing their claim against the bankrupt party,
do they simply have to write off the entire debt?
Seth
>
>> I can see this is an issue for some. An S corp is often really
>> small business who has sought the liability protection of
>> incorporating. They do not necessarily have the funds to retain
>> an attorney. Does this deny them the rights of the courts? It
>> does not for an individual.
>
>For a small corporation that will be going out of business, filing
>bankruptcy is a useless act.
The company in this thread is on the other side: it's a creditor.
Hiring an attorney is probably a losing strategy; the attorney will
likely cost more than they recover.
Seth
Stuart A. Bronstein
> Stuart A. Bronstein <spam...@lexregia.com> wrote:
>>
>>For a small corporation that will be going out of business,
>>filing bankruptcy is a useless act.
>
> True, but *irrelevant* to the subject under discussion.
>
> It was not about the small business _filing_ bankruptcy, but
> rather that the business is a _creditor_ in *someone*else's*
> bankruptcy filing.
Ok, thanks. I hadn't gone back to read the prior posts and had
forgotten that.
> And who can represent said business before the court in _that_
> legal action. If the business doesn't have the money to hire
> counsel to represent them in pursuing their claim against the
> bankrupt party, do they simply have to write off the entire debt?
A right to receive payment is an asset that can be assigned - it
happens all the time. That's why the mortgage crisis arose - banks
were able to sell their loans.
In this case the corporation can assign the asset to an individual,
who will then have the right to appear in court on behalf of
himself.
Stuart A. Bronstein
> You can't avoid a debt by assigning it to someone else. Neither
> can an S-corporation.
Just to clarify as I said above, you can't assign the obligation to
pay, but you can assign the right to receive income.
Bob La Londe
news:Xns9CDC5482DF715s...@130.133.1.4...
> "Bob La Londe" <nos...@nospam.no> wrote:
>
>>> I can see this is an issue for some. An S corp is often really
>>> small business who has sought the liability protection of
>>> incorporating. They do not necessarily have the funds to
>>> retain an attorney. Does this deny them the rights of the
>>> courts? It does not for an individual.
>>
>> I am curious. Might a method of preventing this have been to
>> assign the debt to an individual prior to the bankruptcy
>> proceeding?
>
> You can't avoid a debt by assigning it to someone else. Neither
> can an S-corporation.
No. You missed the point again. I was referring to the S-Corp who is
trying COLLECT A DEBT but may not be able to afford to hire an attorney to
represent themselves if they have appear in court to have a chance to
collect a portion of what they are owed.
Snipped the rest of the irrelevant comments as educational as they were.
Robert Bonomi
Stuart A. Bronstein <spam...@lexregia.com> wrote:
>"Bob La Londe" <nos...@nospam.no> wrote:
>
>>> I can see this is an issue for some. An S corp is often really
>>> small business who has sought the liability protection of
>>> incorporating. They do not necessarily have the funds to
>>> retain an attorney. Does this deny them the rights of the
>>> courts? It does not for an individual.
>>
>> I am curious. Might a method of preventing this have been to
>> assign the debt to an individual prior to the bankruptcy
>> proceeding?
>
>You can't avoid a debt by assigning it to someone else. Neither
>can an S-corporation.
Stu, you're on the wrong side of the facts, _again_. in this discussion. :)
The question under discussion was about the possible actions available _to_
_the_creditor_. And the party 'owning' the debt -- the creditor -- most
certainly _can_ assign it (i.e. 'sell' it) to someone else.
Barry Gold
Good point. As others have pointed out, the simplest way around this
dilemma is probably to sell the debt to the S Corp's CEO/principal
investor and have him file with the BK court on his own behalf.
--
Barry Gold, webmaster:
Conchord: http://www.conchord.org
Los Angeles Science Fantasy Society, Inc.: http://www.lasfsinc.org
Seth
>> I am curious. Might a method of preventing this have been to
>> assign the debt to an individual prior to the bankruptcy
>> proceeding?
>
>You can't avoid a debt by assigning it to someone else. Neither
>can an S-corporation.
The idea is, rather, the S-corp is a creditor. The debtor files
bankruptcy. The S-corp can't afford an attorney's representation; so
the S-corp sells the debt to a natural person (e.g. its owner), and
the person represents himself in bankruptcy court.
Is there even a timing issue? Or can the debt be sold after the
declaration of bankruptcy?
Seth
Seth
A Michigan Attorney <miatt...@gmail.com> wrote:
>But your question doesn't quite make sense to me. A creditor cannot
>just pursue the bankrupt debtor willy-nilly -- either with or without
>an attorney. Relieving the bankrupt of his debts is the whole point
>of bankruptcy. A few types of debts can survive the discharge, but
>most debts that would be owed to a corporation would not qualify. In
>Chapter 7 cases, all a creditor can usually do is file a proof of
>claim and hope that the trustee can find enough assets to pay him a
>few cents on the dollar.
If the trustee is going to pay, say, somewhere between 5% and 25% of
the debts, a business gets its share only if it is represented at the
hearing. If it has to hire an attorney over a $5,000 debt, it will
probably lose money. But by assigning the debt to its owner (who can
represent himself for free), he can probably collect something.
Seth
Stuart A. Bronstein
> A Michigan Attorney <miatt...@gmail.com> wrote:
>
>>In Chapter 7 cases, all a creditor can usually do is file a
>>proof of claim and hope that the trustee can find enough
>>assets to pay him a few cents on the dollar.
>
> If the trustee is going to pay, say, somewhere between 5% and
> 25% of the debts, a business gets its share only if it is
> represented at the hearing.
Sorry, you're wrong. A creditor's rights in a bankruptcy action
extend only to being sure all of the debtor's non-exempt property
is actually turned over to the trustee. Being at "the" hearing,
whichever hearing you are referring to, has nothing to do with much
of anything.
Now if the debtor disputes the claim, then the creditor must file
an adversary action and prove his claim. But establishing his
claim will then only give the creditor (I presume we are talking
about unsecured creditors, of course) the right to a proportionate
share of the bankruptcy estate.
> If it has to hire an attorney over a $5,000 debt, it will
> probably lose money. But by assigning the debt to its owner
> (who can represent himself for free), he can probably
> collect something.
A creditor normally only needs to file a claim. There is a
creditor's committee of the largest creditors who hire the lawyers
and represent all the creditors. There is simply no reason for a
creditor to have his own lawyer unless his claim is denied by the
bankrupt.
Barry Gold
creditor is a small business S-Corporation]
Seth <se...@panix.com> wrote:
>If the trustee is going to pay, say, somewhere between 5% and 25% of
>the debts, a business gets its share only if it is represented at the
>hearing. If it has to hire an attorney over a $5,000 debt, it will
>probably lose money. But by assigning the debt to its owner (who can
>represent himself for free), he can probably collect something.
It just occurred to me that there's something missing from all this
analysis: normally a creditor does not have to appear (or be
represented) at the BK hearing. For example, my wife was listed as a
creditor by a gaming company that had filed for bankruptcy (she had
written a game for them, and might have had some royalties coming,
if anybody bothered to do the accounting.)
But she didn't have to show up at the hearing, just file a claim with
the BK trustee. So ISTM that the S-corporation should be able to
simply file its claim on the form that the BK trustee sends to all the
listed creditors.
I _can_ think of two cases where the S-corporation would need
representation (and hence either have to hire an attorney or sell the
debt to a natural person, who can represent himself).
1. The debt is not established in normal business usage. That
is, it relates to a tort, or arises from a breach of contract
where the amount of damages is not obvious. E.g., the debtor has
breached a contract to sell 250 widgets to the S-corporation, and
the S-corp has had to buy them for more elsewhere. Absent a
lawsuit to perfect the debt, the amount is not something that you
can just list on the BK creditor's form.
2. The BK trustee rejects the claim. In that case, you would have
to go to court and prove that you are owed the debt. And to do
that, you either need a lawyer, or a natural person who can file
pro se.
But in the "normal" course of business neither of those should be
needed. For example, the reverse of example 1 above: the S-corp
supplied 250 widgets to the debtor at a contract price, and the debtor
has not yet paid for them. An officer of the S-corp simply fills in
the claim form and sends it in. I think that's all that is needed.
Am I missing something?
Cy Pres
wrote:
[Possible reasons a corporation with a debt might need to show up in
court with counsel rather than merely submitting a claim.]
>Am I missing something?
In line with your 1 (tort liability), other things that might trigger
an adversary hearing requiring court time and (presumably) that the
corporation be represented by counsel involve something like an
interpleader where multiple creditors are squabbling over to whom a
particular debt is owed, with multiple claimants, requiring a hearing
of the issue. I'd assume that anything raising such an issue would be
over enough money to justify having counsel.
Mike
> se...@panix.com (Seth) wrote:
>> If it has to hire an attorney over a $5,000 debt, it will
>> probably lose money. But by assigning the debt to its owner
>> (who can represent himself for free), he can probably
>> collect something.
>
> A creditor normally only needs to file a claim. There is a
> creditor's committee of the largest creditors who hire the lawyers
> and represent all the creditors. There is simply no reason for a
> creditor to have his own lawyer unless his claim is denied by the
> bankrupt.
But at that point, would it be too late for the creditor to assign the
debt to the owner? Now it might be that most claims are probably
accepted and thus it wouldn't matter but since there is that chance,
would it be in the best interest of a S-corp creditor to automatically
assign the debt to the owner as soon as they even hear rumors of the
debtor going bankrupt or can the debt be re-assigned at any point (even
as late as the morning of the hearing in court for the appeal of the
denial of the claim?)
Stuart A. Bronstein
>> A creditor normally only needs to file a claim. There is a
>> creditor's committee of the largest creditors who hire the
>> lawyers and represent all the creditors. There is simply no
>> reason for a creditor to have his own lawyer unless his claim
>> is denied by the bankrupt.
>
> But at that point, would it be too late for the creditor to
> assign the debt to the owner?
A creditor has a limited time to file a claim with the bankruptcy
court. As long as it is filed on time, I'm not aware of any problem
with the creditor assigning the claim after that time.
Seth
Considering the size of the market in bonds and stock of bankrupt
companies before, during, and after hearings, plans, arguments,
rulings, appeals, and everything else, I'd say that it's quite
possible to assign a debt at any time.
Seth
Stuart A. Bronstein
>>> But at that point, would it be too late for the creditor to
>>> assign the debt to the owner?
>>
>>A creditor has a limited time to file a claim with the
>>bankruptcy court. As long as it is filed on time, I'm not aware
>>of any problem with the creditor assigning the claim after that
>>time.
>
> Considering the size of the market in bonds and stock of
> bankrupt companies before, during, and after hearings, plans,
> arguments, rulings, appeals, and everything else, I'd say that
> it's quite possible to assign a debt at any time.
That is not the issue. The point is that if the original creditor
does not file a claim in bankruptcy within the time provided, someone
who takes assignment of the debt after that time is precluded from
filing his own claim.
Mike
> That is not the issue. The point is that if the original creditor
> does not file a claim in bankruptcy within the time provided, someone
> who takes assignment of the debt after that time is precluded from
> filing his own claim.
But the original thing was that an individual can't represent, in court,
an S-corp that he owns and that he'd need a lawyer to represent the
S-corp (assuming the owner isn't a lawyer himself.) So would the
following work?
S-corp (S) sells c-corp (C) 100 widgets.
C files for bankruptcy.
S files a claim (can owner (O) file the claim without a lawyer? I'm
gathering O can do that much on behalf of S.)
C denies the claim, saying it'd been already been paid.
S gives the claim to O.
O goes to court to fight for the claim as an individual and to get part
of C when C is liquidated.
Stuart A. Bronstein
> But the original thing was that an individual can't represent,
> in court, an S-corp that he owns and that he'd need a lawyer to
> represent the S-corp (assuming the owner isn't a lawyer
> himself.) So would the following work?
>
> S-corp (S) sells c-corp (C) 100 widgets.
>
> C files for bankruptcy.
>
> S files a claim (can owner (O) file the claim without a lawyer?
> I'm gathering O can do that much on behalf of S.)
>
> C denies the claim, saying it'd been already been paid.
>
> S gives the claim to O.
>
> O goes to court to fight for the claim as an individual and to
> get part of C when C is liquidated.
I'd think so, though there may be nuances that I'm not aware of
without further research.