Texas Bankruptcy Lawyer: How to Close a Business

Dallas/Ft Worth Bankruptcy Attorney Explains the Process

Video Transcript: 

David Shuster: 

Having an attorney to guide you through that process is not super expensive, and it'll alleviate a lot of headaches later.

Tom Mustin: 

Closing your business can be one of the hardest things you'll ever do, and with so many decisions to make, it can help to have a bankruptcy attorney explain your options. That's why we're talking to Attorney David Shuster on today's episode of Ask The Lawyer. David, thank for joining us.

David Shuster: 

Yeah, thank you. Glad to be here.

Tom Mustin: 

Well, as a bankruptcy attorney, I know you've seen situations where people decide it's in their best interest to close down their business. Talk about your experience with those situations.

David Shuster: 

Well, yes, it's often that I talk to clients who are still operating the business, and usually there's a large business loan involved, and there is often the inability to pay the monthly rent, if there is rent, and so people are just looking for answers of what to do. It could be that there's still income coming in the business, and so really, I'll tell you in this conversation, the overriding theme is gonna be talk to an attorney, talk to an attorney, especially a debt relief attorney if the business has debt, because the initial consultation is gonna be, likely gonna be free, in most cases, a free 30-minute consultation, and so much can be learned in that consultation. And so it's just every situation is different, but talking to attorney early in the process, at any time that the business owner knows that there's just too much debt to pay off and keep going.

Tom Mustin: 

Right. And let's talk about the process of actually shutting down a small business. I imagine, obviously there's more to it than just have the owner walk away.

David Shuster: 

Yes, yeah, first of all, of course, every business is different. There's many things, different situations arise in different... I would suggest different... Recommend different things. But yeah, a lot of times the business will still be operating, but is that the best time to file bankruptcy? Usually not, unless you're talking about a reorganization bankruptcy. Most of this conversation is gonna be geared towards a personal Chapter 7 Bankruptcy or a Chapter 7 Bankruptcy for the business, meaning that it's not gonna be able to keep going. And so when I get these calls, and the consideration is, "Hey, do I just close the door and walk away?" Well, sometimes, but they often wonder, "What can I take from the business? What can I leave? What's secured? What's not secured?" And so really having an attorney to guide you through that process is not super expensive, and it'll alleviate a lot of headaches later, and really quite frankly with the creditors as well.

David Shuster: 

If your business is thrown into a bankruptcy, when you know that the doors are gonna be closed, and you're just gonna be liquidating the business anyway, then oftentimes, it's better to get in touch with the creditors early on, both yourself as the business owner and me as your attorney, to just facilitate an easy process where, "Okay, well, hey, Mr. Landlord, Mrs. Landlord, get in touch with the lender, the secured stuff's in there." And then, if later it's needed to file a bankruptcy, we can do that. The bankruptcy is a way to kind of mop up the mess, if you will, to make sure the business owner can move on with their life.

Tom Mustin: 

And you touched on this a little bit already, but, well, talk about some of the other options a small business owner has when he or she is closing down their business, because they can't pay their debt.

David Shuster: 

Sure, yeah. So yeah, again, talking to an attorney right away, we prioritize what should be paid. If you have an employee, obviously, I think everybody knows that's top priority. If you have payroll taxes that you withheld from someone's check, obviously that's top of the list there. So anything that we look at right away will be to determine what debt that we know has to be paid in full regardless, and let's make sure we have resources to do that first. Other options include working out agreements with the creditor, and it doesn't have to be an agreement that happens immediately when you close the doors. Again, if the business is bringing in income, and you're maybe not paying the rent, or you're not paying that huge loan payment, well, then you've got income and you can use that to maybe you pay some of your payroll taxes or other things that have to be paid. And then later on, if a bankruptcy is not the best solution for the business owner, because they have assets that aren't exempt, then we'd talk about what asset can be sold to potentially settle this business debt. It's always about how best can the business owner move forward so the horrible result of closing a business doesn't have to just be something that completely ruins them?

Tom Mustin: 

Well, that's a great answer there. And if the business is a sole proprietorship as opposed to a LLC or a corporation, does that change the options that the owner has?

David Shuster: 

Not really, no, it kind of... No, it can affect what I would recommend that person to do, but, no, it doesn't. And since you brought that up, oftentimes, if you've got an LLC or and S Corp, would be the two forms of closely held businesses, and by the way, we're mainly talking about small businesses obviously, could be just yourself, could be husband and wife, could be business owner, business partner, either way, closely held business is mainly what we're talking about here. And so as we go into that situation, maybe the business owner says, "Well, wait a minute, I've got these clients here. I've just got to get rid of this big loan, and I can essentially still do what I've been doing." If it's general contracting, if it's building pools or whatever it is, you can still... You wanna keep going, you just... It didn't work out with this particular entity. And so the LLC versus the sole proprietorship, that can make sense to actually start working as a sole proprietor as you slowly ditch the LLC, because that's what's attached to all the loan and debt. It's a tight-rope for sure, letting go of a business and then starting another business, you don't wanna be like you're just carrying on the same business.

David Shuster: 

So it is a tight-rope, but it's a tight-rope that we often walk, and I often will advise my clients on how to do that. And so, sole proprietorship versus LLC, when you own a share of a company, then your ownership are the shares, and then the company owns everything else. Well, if it's a sole proprietorship, then you as the business owner, you own everything. It's you that owns it. You're the business, you own the business property, and so that can play into when you exempt the tools of the trade. For example, in Texas, you can exempt $25,000-ish or so to have just business tools of the trade, and that can include a truck. And so a lot of times they can just keep operating with the tools of the trade and then maybe open up an LLC and start doing something same or similar, just slowly as they ditch the other debt. And so that's something... We discuss all options and so whether you have an LLC, you wanna open another one, whether you're a sole proprietor and then I then recommend to open an LLC, either way, it just... It might change the technicalities of it, but the result will basically be the same.

Tom Mustin: 

And what's interesting about what you're saying here is that bankruptcy is not the only way to get rid of your debts here?

David Shuster: 

Oh, certainly not. No, it's not. And it's just that my clients can't pay the creditors on their terms. They're wanting too much, too fast. And so when you cut off the creditors, it's not like, in most cases, you're gonna get a lawsuit at your door right away. Some of them will. There's aggressive ones, but most of the time it just buys a little buffers zone of time where the attorney can then reach out to the bank and the creditors and provide some financial information and just determine what can be done to settle this debt. They can't pay it all, it's just not gonna happen, but they do have this asset over here and let's talk about how much you can take Mr. Creditor or Mrs. Creditor to get paid and so this person can move on with their life.

Tom Mustin: 

And you were just talking about the assets. Walk us through what happens to the assets of a business that is closing either through bankruptcy or through some other way.

David Shuster: 

Yeah, good question. It depends what the assets are, obviously, but if it's... If you have where the debt's coming in and you know you can't keep it going, well, that's why you see it's going out of business sales. They wanna get rid of the inventory, and if you wanna finish this last job that you're working on. And so if you have equipment after that that is not tied to a loan, then you can exempt that as a tool of the trade, if you're still gonna be using those tools or whatever. And again, it could be a car or whatever, if it's some sort of tool used in the business, you can exempt that stuff and keep it.

David Shuster: 

But right away, we determine what's secured, what's not secured. If there's a large business loan, then usually the equipment that you have will be secured. If you have printing equipment or some... So what happens to the stuff? We walk through that analysis just to say, "Hey, well, what's paid for? What's in your name? What can we keep? What's in the business's name? What's secured? What's not? Oh, you're gonna have to give all that stuff up. Okay," and just go through that analysis to determine what can be kept and what can't.

Tom Mustin: 

Well, Dave, a lot of great information as always. I really appreciate you joining us and sharing your expertise with us.

David Shuster: 

Yeah, glad to be here. Thanks, I enjoyed it too.

Tom Mustin: Alright. 

And that's gonna do it for this episode of Ask The Lawyer. My guest has been David Shuster. If you wanna ask David a question about your situation, call the number you see on your screen. Thanks for watching. I'm Tom Mustin for Ask The Lawyers.

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