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    S-corp cash in bank account

    I have filed for Chap 7 personal bankruptcy. I own a S-CORP that had money left in the account at the end of the tax year. Trustee has filed a motion to handover all the money in the business account at the end of tax year to her. Chap 7 was filed before the year end.

    I was keeping this money to pay my individual Federal/State taxes due that I have also mentioned in Chapter 7 filing. I have already used this money to pay personal Federal and State taxes due for past year and for the running expenses of the corporation. My question is that a) can Trustee lay a claim on money in the business account of S-Corp and if yes b) as this money is pre-tax who is responsible for paying taxes on this money and c) if I have to surrender this money, can i pay the trustee after deducting all the taxes that were due on that income which I have already paid for that tax year.

    #2
    a) Yes, the Trustee can lay a claim on the money in the S-Corp. It is part of the BK estate because you filed personally and the S-Corp is an asset of yours therefore the funds in the account belong to the BK estate.

    b) You are responsible for paying taxes on income earned thru the S-Corp, just like usual.

    c) No, you can not deduct your taxes from the money before handing it over to the Trustee without prior permission from the Trustee. Getting permission from the Trustee now, after you have filed, is unlikely. Now, if you would have paid the taxes due, or a reasonable estimate of the taxes due PRIOR to filing, then you would have been ok. That is in fact one of the strategies when you file, pay your outstanding taxes prior to filing, even your estimated amounts. You can't overpay, or the Trustee will go after those funds too.
    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..

    Comment


      #3
      I disagree that is a separate entity, just because it's a S don't change anything over a C.

      except you pay taxes on the profits personally lower rate rather than a higher corporate rate.

      IMO the trustee gets nothing.

      Comment


        #4
        The trustee can get everything in the corporation, including all money. The corporation has no exemptions. It is an asset.
        All information contained in this post is for informational and amusement purposes only.
        Bankruptcy is a process, not an event.......

        Comment


          #5
          Originally posted by jimbo367 View Post
          I disagree that is a separate entity, just because it's a S don't change anything over a C.

          except you pay taxes on the profits personally lower rate rather than a higher corporate rate.

          IMO the trustee gets nothing.
          Trustee steps into the shoes of the shareholder who is the debtor in bankruptcy. The trustee can exercise whatever power over the S-Corp that the debtor has; in essence, the trustee can do whatever the debtor can do with business, which means, if the debtor, based on his ownership interest and operating agreement has the right to liquidate the business, then so does the trustee. Some trustees will simply shut down the debtors business, regardless, the fact that it is a separate entity does not protect it from the BK.

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            #6
            One more clarification, as money in S-Corp is pre-tax, I have mentioned in Chapter 7 documents estimated taxes due for last year. Although, actual taxes came little higher. Can I ask Trustee to subtract the estimated taxes amount mentioned in documents and give her the remaining money

            Comment


              #7
              It all comes down to exemptions. The taxes and debts of the business (unless secured) are of no concern to the trustee and don't matter. If you file BK, have an S-Corp with cash sitting in the account, the trustee has the option to take it, PERIOD.

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