What are my rights if I have a judgment and my debtor has filed for bankruptcy?
Question Details:I have 54K judgement against a CA CPA dba S-Corp. He sold the clients for 150K, took the proceeds out of the S-Corp and how has filed Chap. 7. The Bankruptcy Trustee sensed fraud and hired an LA lawyer who says he has a good case for fraud but now wants to settle for 24K which is his legal fees. He says the debtor has no equity in 2 homes and only a 100-200K CPA practice as a sole proprietor. Can myself or others buy the practice out of Chapter 7 and get the 100-200K market value to pay myself and the Sub-S creditors, B of A and IRS? Should I consult with a bankruptcy attorney about this? I'm in San Jose, CA.
It's not impossible that creditors could buy the business, thought it's unusual and is apt to be avery complex transaction; if you want to consider this, definitely consult with a bankruptcy attorney to see, given the status of the filing and the circumstances, what could be done.
It is not recommended, however. The market value of a sole proprietorship is HIGHLY speculative--there is no general liquid market for a business like that and moreoever, so much of the value rests in the work, reputation, and relationships of the proprietor. If you buy a CPA biz that is tarred by bankruptcy and where the CPA (who has the relationship) will either not work for you or will work for you probably half heartedly (it's not his biz anymore), what exactly are you buying? The old tax files of people who are free to go to a new CPA if they want to? There's an excellent chance the business simply is not worth anything like $100 - $200k or that whatever it's worth is not effectively realizable.
(Note: in addition to being a lawyer, I've owned two 1 or 2 man businesses in other fields, and my father was a CPA sole prorprietor, so I have a good sense for the values assigned to small business, including accounting practices.)
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