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Guru_Guy
Guru_Guy, Attorney
Category: Bankruptcy Law
Satisfied Customers: 2418
Experience:  Years of experience providing advice on bankruptcy and other alternatives to debt problems.
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I own a small business that appears headed for ...

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I own a small business that appears headed for failure...soon. I have a business loan that I can no longer afford to repay. The loan is with a private finance company, but was SBA approved (approx. bal. of $69K). My business is incorporated. The only equipment/supplies I own is my truck (a 1998 pickup with 120K miles). So aside from my initial investment and two years of hard work, I don''t stand to lose very much. My question: Do I have to file bankruptcy or do I simply stop making the loan payments?
Submitted: 8 years ago.
Category: Bankruptcy Law
Expert:  Guru_Guy replied 8 years ago.
Hello,

If you have any personal liability for the debts, such as personally guaranteeing the debt as a cosigner or some other fashion, then bankruptcy would be the more sensible option. Even if you are completely judgement proof (in other words have no assets to collect) if they lender writes off the debt, that will be treated as taxable income by the IRS. So, for example, if you are in the 25% tax bracket, that $69k forgiven loan becomes a $17k tax bill. If, however, the loan is discharged in bankruptcy, the forgiven debt is not taxable.

On the other hand, if the creditor has no recourse on the debt outside of the corporation, and the corporation closes its doors, then the bankruptcy protection should not be necessary. But be careful, if you have removed assets from the corporation prior to it being dissolved, the creditor might come after you for those assets. For that reason, bankruptcy is always a good form of safety from such suits.

I hope this helps!


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