Filing Bk with a C Corp Business

[justbroke]

If the business is in such bad shape, would it not be wise to step back and re-assess the entire situation? Perhaps shutdown the business, file Chapter 7 personal bankruptcy, then receive your discharge. Then, after the dust settles, start a "new" business? I don't know. I had a similar issue and I did shutdown my business (S Corp). My business had debt and no assets.

[huffydogg]

Thanks for the advise!! The business debt was not incurred under the corps name, it was incurred under the old business name, with a different tax ID# that has been closed. When the business was made a corp, it was given a new name and a new federal tax id#, on paper it looks like a total different business. We had to open new bank accounts, new merchant accounts, and so forth.

When I filed for chapter 13 almost 3 years ago I was able to include some business credit cards into my bankruptcy with no objections. The Trustee didn't question anything, and the only reason I did a chapter 13 was to strip my second mortgage. I'll be done with my 3 year chapter 13 in October. The difference with my wife is that she is a shareholder of the corporation, while I wasn't.

Currently, the business is not making any money, its barely paying the bills, and my wife hasn't received a paycheck since December. We are hoping the bk will help us out.

[despritfreya]

It is the shares of the corporation that are assets of the bk. The Trustee would have the right to sell the shares, not the assets of the corporation. He is not likely to sell the shares if the corporate debt is substantially higher than the corporate assets since no one will want to buy the shares. The Trustee is not going to operate the business since he has no authority (without a court order) to do so and the liability of operating any business is way too great.

We file bks for folks who own corps all the time. So long as the debt of the corp exceed its overall assets and there is no competitor out there who would like to see the company out of business, there should be no problem. If the Trustee thinks the shares might be worth something, you can offer to purchase them from the estate. Not a big deal.

Now, if there is “equity” in those shares, you would want to stay away from a Chapter 7.

As to the corporate debt, your bk will not eliminate the corp’s responsibility to pay the debt. However, the only debt the corp is responsible for is the debt IT incurred in ITS name.

Des.

[frogger]

My wife is concerned that the trustee can still come after the corporation's assets.

You need to shop for a good bk attorney that is experienced with corporations. The corporate shares are an asset of your wife, and as such, it will be a part of the bankruptcy process. As justbroke has stated, the corporation can not discharge its debts, so you most likely will need to close the corporation as part of the bankruptcy process. Get a good attorney and start planning.

[justbroke]

Yes, the Trustee is likely to pierce the corporate veil if this "C" corporation is nothing but an alter ego of your wife. Usually, they can't pierce the veil, but closely held corporations are tough. The Trustee actually steps into your shoes and can do what you would be able to do as sole owner.

Whether the Trustee would do that, is really the question. No one can tell you with certainty! The Trustee could determine that the corporation is worthless and abandon the "shares" owned by your wife. In an alternate reality, the Trustee may find something salvageable and decide to liquidate the shares, operate the business, or outright sell of the assets. There are just too many factors. You need a really good attorney!

Even if she discharges her personal obligation, the business would still owe the money! A business can't discharge debt.

I would make sure I find an experienced attorney that understands both personal and business bankruptcy law. Ask the attorney about a closely held corporation that is just an "alter ego" of your wife. Ask about piercing the corporate veil and what powers the Trustee would have in exercising rights as the sole shareholder.

[huffydogg]

My wife is thinking of filing for chapter 7, but she is worried because she is the only shareholder of her C Corporation. She wants to include in her BK a business loan and some business credit cards that she obtained while the business was a sole propietor. The business loans and credit cards are under her name and the old business's name. The business name was changed when it was made a corporation. My wife is concerned that the trustee can still come after the corporation's assets. My wife has seen 2 attorneys, one said that they can come after the corporation, and the other one said no because the business is a separate entity and that the business loan and credit cards were taken out as personal credit because the business used to be a sole propietor. Any advise???