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i have a California S-Corp and am considering BK for the corporation.

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i have a California S-Corp and am considering BK for the corporation. Will the corporate credit cards be wiped away in the bankruptcy and outstanding gift cards from the business - what happens if those clients want to come after me?
Submitted: 5 years ago.
Category: Bankruptcy Law
Expert:  JoeLawyer replied 5 years ago.
Generally, a corporation's credit card liability is wiped out in Chapter 7, though of course if the corporation has any assets to liquidate, the trustee will liquidate them and give the proceeds to the creditors, pro rata. However, if an owner, officer, etc, of the corporation is jointly liable on the credit cards, then the credit card lenders can still pursue the co-signer unless that person also files personal bankruptcy. Usually, someone is liable on credit cards with the corporation since credit card lenders rarely give a credit card to a corporation without a co-signer, since they know a corporation is really a $90 piece of paper and apt to vanish.

I should also note that if the corporation dumps assets to the owners prior to filing bankruptcy, this can be a big problem since those transfers may be considered fraudulent transfers - so talk to a lawyer before you do anything drastic!

Regarding gift cards - that is an extremely tough call. If the purchasers of the gift cards feel they can prove the corporation was still selling them after it was insolent, or when it knew or should have known that it would not be able to honor the gift cards, then the corporation/owners of the corporation may face an objection or adversarey proceeding from the gift card purchasers. I have only had one case similar, and in that case the gift card buyers filed suit with the attorney general and it was settled out of court, though I think we had a good case since we had really good evidence that she intended to stay in business at the time the gift cards were sold - but she didn't want to take the chance at trial. This really depends on the specific circumstances and the disposition of the gift card purchasers.

I hope this helps and a positive feedback is always appreciated if this was useful to you.

LEGAL NOTICE: I am only licensed to practice law in certain state(s) and I cannot give legal advice to someone who does not reside in a state in which I am licensed, nor shall anything I say in the above answer or elsewhere on this site be deemed legal advice, even to someone who resides in a state in which I am licensed. Fees I receive for answering questions are paid for information, not for legal advice. This forum is designed to provide general information only, and information herein is not warranted to be correct or applicable in any way since laws may have been misinterpreted herein, since laws change from time to time, and since the impact of those laws on any particular situation varies. The information presented in this site shall not be construed to be formal legal advice nor the formation of an attorney-client relationship. Persons accessing this response are encouraged to seek independent legal counsel in their jurisdiction for guidance regarding their individual circumstances. Do not take any action or inaction based on information presented herein since it is informational and may not be accurate or applicable to you; it merely attempts to give you a basis of knowledge to help you formulate questions to ask a legal or other professional in a face-to-face meeting in your jurisdiction. Joseph Ross does not hold himself out to be a specialist or expert in any area, regardless of assertions made by any third party, and any implication of being an expert or specialist herein is made in error. I hope the information presented above is useful to you. Answer above is (c) Joseph Ross. All rights reserved.
JoeLawyer, Attorney
Category: Bankruptcy Law
Satisfied Customers: 767
Experience: Attorney in the practice of Bankruptcy Law since 1996
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