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

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Personal Bankruptcy and S Corp

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  • Personal Bankruptcy and S Corp

    First, I hope this is the right forum for this. This is my first time posting here.

    Here's where I am at and where I need some guidance. I currently own an S Corp in which I am the sole owner and employee. I do not have any other employees. I currently have a substantial (for just me) amount of debt I acquired years ago when I first started going full time with my business that I have been staying on top of and even paid down some over the years, but there is still a significant portion left. It is all credit card debt that I had to use to finance the business, not having any other resources at the time.

    My issue now is I have two main business contracts that I rely on to pay my monthly obligations and due to those clients having financial challenges themselves, I have found that the largest one is doing a major cutback soon, which will also cut my business dramatically with it's income and therefore will not be able to make all it's monthly obligations when that occurs.

    Most of the business debt was personally guaranteed, save one major credit card and a few other vendor credit accounts. The business has no real assets (service oriented with no inventory) save a vehicle worth about $3500 in KBB trade in value.

    I spoke with one attorney a little while back who suggested I should file a personal Chapter 7 and claim all the personally guaranteed business debt, along with all my personal debts. My problem is this business is my sole source of income, as well as I'd like the keep the business car to use for work. As I stated before, the car is in my company's name. But it is what I drive to do my work.

    Even after the cuts soon, I will still have some income to pay part of the bills, just not all of them. And since I want to keep my business operational, should I explore Chapter 13 personal instead of Chapter 7?

    There are other personal assets that might be protected too, if I went for 13. My other question is if I include my personally guaranteed business debts in the 13 filing, would then my business not be liable anymore for them?

    And if my business would still be liable, would those creditors still close the accounts even if my business continued to make payments to them? I might be able to make the business payments if I could get rid of, or at least reduce, my personal debt monthly payments.

    What about closing down the current business and opening a new one? Could I then transfer the vehicle to that new company? What about transferring it to myself personally, so it isn't a business asset anymore and then utilizing the personal exemptions concerning vehicles? Of course, I only want to do what is permitted legally and would not want to jeopardize the bankruptcy proceedings in any way, etc.

    I am basically just trying to find a way to save my business and livelihood during this financial downturn while also filing a personal BK, whether it be a 7 or 13, whichever is in my best interest. Any advise or counsel would be welcome.

  • #2
    I've been through this exact situation. I still own my business but all of the business accounts that had a personal guarantee were cancelled by the vendors. My business still owed the money, I was just no longer personally liable. Do NOT transfer anything out of or into your name. That's a major red flag. Go see an attorney right away. I was lucky and the Trustee left my business alone but, as it was an asset of mine, he could have taken it. All of this will not as bad as you think but please don't do anything that will draw attention. Good luck to you.


    • #3
      Thanks for the answer.

      I consulted with an attorney yesterday who advised that a personal chapter 7 would be best for me for the present. I have enough exemptions to cover all of my personal assets, as well as will keep my house and the car I am currently paying for.

      He did say my business would still be liable for the personally guaranteed business debt, but I think I can manage that for now. And if that gets to be too unmanageable in the future, I can either file a business chapter 7, or even just shut down the business since the debt is all credit card debt and there will be no business assets for anyone to come after, save a vehicle worth about $3500-4k.

      So that is the road I probably will take. My assumption is also that my business credit cards that were personally guaranteed will all be cancelled, even with the business still running and being current on the payments after the personal BK. But, I do have a few non PG'd business lines of credit that I should still be able to use for now.


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