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JoeLawyer
JoeLawyer, Attorney
Category: Bankruptcy Law
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Experience:  Attorney in the practice of Bankruptcy Law since 1996
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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: 7 years ago.
Category: Bankruptcy Law
Expert:  JoeLawyer replied 7 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.

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