Converting sole proprietorship to corporation during bankruptcy (debt, attorney, liabilities)

[bluebeard96]

I've had a sole proprietorship for about 2 years. During that time I had some medical issues and made some mistakes and incurred a great deal of personal debt, as well as some business debt (from not being able to complete projects due to the health issues).

The personal/proprietorship debts are enough that I've made the decision to declare bankruptcy. In moving forward and getting a fresh start, I want to do things right and set up a corporation for my business. Now, I know that converting my business to a corporation isn't going to absolve personal responsibility for the already-incurred business debt from the proprietorship. But from what I've read, converting to a corporation means that all business assets AND LIABILITIES flow to the corporation (but still not absolving me of personal responsibility).

So, if I convert, I am still personally responsible, but so is the corporation? Should I wait until my bankruptcy is discharged before converting the company to avoid the debt surviving the bankruptcy process? Or is there such a thing, instead of "converting" the business, where I can create a brand new corporation and the sole proprietorship does an asset-only sale to the corporation? Would this allow the debt to stay attached to me personally as incurred under sole prop (and eventually discharged in the bk), yet allow the corporation to continue to do business with the same client base without any responsibility for my personal/proprietorship debt?

Any advice?

[MrRational]

Originally Posted by bluebeard96

from what I've read, converting to a corporation means that all business assets
AND LIABILITIES flow to the corporation.

And with the presumption that there are no other 3rd party encumbrances...

I've had a sole proprietorship for about 2 years.
The personal/proprietorship debts...decision to declare bankruptcy.

And where are you in that process?
Do you have an attorney?
Do you have any Trustee or other Court based official involved?

So, if I convert...

I really don't believe that you can.

[bluebeard96]

I do have a bankruptcy attorney, and the paperwork has been drafted but nothing has been filed as of yet (we were waiting to move so that the bk wouldn't affect our ability to secure a housing lease).

I heard back from him this morning, and he's thinking same as I - that it's probably best to not do anything with corp filing until after the debt is discharged, at which point the conversion can be done with the company debt free. I was just looking to see if an "asset only" sale would circumvent the debt attaching to the new corp, but I agree it's not worth the risk. There's no rush to set up the corp, other than it's a better way to manage the company in the future. I'll just deal with the bk first, then worry about converting.

Thanks.