Chapter 7 Business Bankruptcy Filings in SDNY and EDNY

 

Chapter 7 Business Bankruptcy Filings in SDNY and EDNY

In today’s challenging economic climate, many businesses are struggling due to declining sales, high interest rates, tariffs, supply-chain pressures, or other factors. As a result, an increasing number of business owners in the Southern and Eastern Districts of New York are choosing to close their doors and file for Chapter 7 bankruptcy. Filings commonly rise after the holiday season, following Christmas and Chanukah.

Most business filers are Subchapter S corporations or LLCs. A Chapter 7 bankruptcy for a business is a liquidation proceeding. While many cases are “no-asset” cases, if the company does have assets, the Chapter 7 Trustee will hire a liquidator or auctioneer to sell those assets and generate funds for distribution to creditors.

Trustee Document Requests

After a business files for Chapter 7, the Trustee will typically request financial documents, including:

• Bank statements

• Tax returns

• Credit card statements

• Accounting records

• Contracts and leases

• Any documents reflecting asset transfers

These materials are reviewed by the Trustee, Trustee’s counsel, or the Trustee’s accountant to identify preferential payments, fraudulent conveyances, and other questionable or prohibited transactions.

Common Transactions the Trustee Will Scrutinize

Below are transactions frequently examined or challenged in a Chapter 7 business case:

1. Preference Payments
   Transfers made to creditors within 90 days before filing (or within one year if to an insider such as a family member, officer, or business partner) that give one creditor more than others. The Trustee may “claw back” these payments to ensure equal treatment.

2. Fraudulent Conveyances
   Transfers made to hinder, delay, or defraud creditors—or transfers for less than reasonably equivalent value—typically within two years under the Bankruptcy Code, and longer under New York’s Debtor & Creditor Law. These often involve “sweetheart deals,” including transfers to family members, insiders, or related entities.

3. Personal Expenses Paid by the Business
   Payments for the owner’s personal insurance, car expenses, meals, vacations, or similar items can be flagged by the Trustee as improper or excessive.

4. Gifts or Large Transfers to Friends or Family
   Significant transfers to insiders may be reversed if the Trustee determines the business did not receive value in return.

5. Sales of Assets Below Fair Market Value
   Selling equipment, inventory, or property for less than fair market value, particularly shortly before filing, raises red flags for fraudulent transfer claims.

6. Unusual or Inconsistent Transactions
   Any activity that departs from ordinary business practices—such as sudden depletion of assets, hidden accounts, cash withdrawals, or unreported income—will be reviewed carefully.

7. Undervalued Transactions
   Transfers where the business received significantly less than fair market value, sometimes going back up to five years under applicable state law.

8. Transfers Intended to Defeat Creditors
   Any transfer made to move assets out of reach of creditors (e.g., shifting assets to a family member or affiliate) is subject to reversal.

9. Transactions Where Consideration Is Paid to a Third Party
   If property goes to one person but payment goes to someone else, the Trustee may challenge the transaction as improper.

10. Transfers to Insiders or Related Entities
    Deals involving officers, directors, family members, or other businesses under common ownership are examined with particular scrutiny.

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If you or your advisors have questions about Chapter 7 business bankruptcy filings in SDNY or EDNY, please contact:

Jim Shenwick, Esq.
📞 917-363-3391
📧 jshenwick@gmail.com

Schedule a phone call:
https://calendly.com/james-shenwick/15min

We help individuals and businesses with too much debt.