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LegalCornerTM - Bankruptcy Basic Facts F.A.Q.'s

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Q.Will incorporating my business before I file bankruptcy do anything?

A.Incorporating a sole proprietorship creates a legal entity separate from the business owner. Most trustees will not interfere in the business operations of a corporation owned by a bankruptcy debtor. However, if the corporation has a greater value than any exemption claimed in the stock, the trustee may insist that the debtor either: (a) buy the stock back from the bankruptcy estate or (b) dissolve the corporation so its value can be distributed to the bankruptcy estate. Arguably, incorporating a sole proprietorship does not constitute a fraudulent transfer but merely a change in form of the asset held by the debtor. Before incorporating, you would be wise to consult an attorney who can advise on the judicial attitudes in your locality.

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