Forum Rules (Everyone Must Read!!!) (updated: 04/28/2015)

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Business Debt- Personal Guarantee

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  • Business Debt- Personal Guarantee

    I am self-employed. About 1/3 of my unsecured debt is actually business debt that is personally guaranteed (20k Amex and 25k Citibank). I am wondering if I file personal bk (ch 7) can these creditors still come after my business? It is an S-Corp. There are no assets except for two computers that are about 3 years old and 2 phones, but I do receive commissions each month in the business name. Do I need to incorporate in another name and have my commissions assigned to a new corp?

    I have had 2 attorney consultations and they haven't mentioned anything, but I want to be sure before I move forward.
    9/1/2009 - Finally made the decision to BK ($157,000 in unsecured debt). I will be talking with attorneys asap.

  • #2
    I think that you will find that if your are the only shareholder of your S-corp, then yes, the trustee can come after your business. The reason for this is because while the S-corp provides limitted liability against lawsuits (for tort), you have personally guarenteed the debts. If you are the only owner of the S-corp, you will have to declare your shares as assets, and the trustee will figure out really quick that you are essentially a sole proprietorship, and will sieze the business if it has any value.

    That said, you may need a lawyer familiar with business filings. There may be a way to protect the business, but you may need to file a chapter 13 to protect it.
    Filed 8/08 - Discharged 11/08! Not tracking FICO.
    Pre-Bankruptcy Net Worth: -$72,000... Today's net worth: $142,000.
    If your FICO score just went higher than your net worth, and you are happy about this, you might have a financial problem!


    • #3
      If you had a S-Corps with 2 shareholders (husband and wife) and only one shareholder had a business CC (with personal guarentee) and debt of $25k plus 45K personal CC debt.

      Can the CC debt be removed with a S-corps bankruptcy or is it all lumped in with his personal situation?


      • #4
        Your attorney will give you the correct answers, however I think that you're going to need to start a new S-Corp, and file 7 on yourself. The current S-Corp will still owe the money, but you would be personally discharged from it. If the current S-Corp has no value and no income, you basically close the doors on it and don't worry about it anymore.
        All information contained in this post is for informational and amusement purposes only.
        Bankruptcy is a process, not an event.......


        • #5
          If you file a Ch 7 you discharge your personal liability for the debt (you discharge the personal guarantee). However, the cc can get a judgement against the business and sieze the bank account to satisfy the debt - even after your discharge. Any commissions going into the account would be subject to being siezed this way. It is probably a good idea to start a new S corp to avoid losing the commissions to the creditors.
          Filed CH 7 9/30/2008
          Discharged Jan 5, 2009! Closed Jan 18, 2009

          I am not an attorney. None of my advice is legal advice in any way..


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