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socrateaser
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 33850
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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hi - my husband had an scorp. I am neither a share holder,

Customer Question

hi - my husband had an scorp. I am neither a share holder, officer or an employee of the company. I have a separate job. Some of his creditors are now sueing me. What should I do. They don't have a case against me. I am not rich and cannot afford a long drawn case. Can I get a free lawyer?

Whole story - He is currently in India for the past year and a half. In the mean time his company died. Not yet closed formally. I am being sued along with him and his company by several creditors for approx. million dollars. He also has company credit card debt of about 100k. I don't know what other debt he has. Maybe some payroll or some other statutory payments, taxes or anything related to the company. Can I be liable for all this? If so what do I do?

This question is taking too long to be answered. Can you make it more urgent? It has been more than an hour.
Submitted: 3 years ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 3 years ago.
Hi,

Sorry about the delay, but I "justanswer" the questions when I see them.

It is possible to sue a person for a corporate debt on something called an "alter ego" theory. In California all property is considered community, which means that you are presumptively a one-half owner of the corporation, even though you own no shares.

It's possible that naming you in the suit really has no substance, but unless you defend against the plaintiff's claim, you will lose by default. Defending this sort of suit could quickly run up a legal bill of $25,000 or more. So, you may want to seriously consider filing for bankruptcy, assuming you have no real assets that the creditor could reach. A Chapter 7 bankruptcy will probably cost you about $2,500 -- and it will end the lawsuit issue in its tracks.

For a bankruptcy attorney referral, see these links: ABA; Martindale.

Hope this helps.

Terms and Conditions: By your continuing in this conversation with me, or by your clicking “Accept”, you are expressly agreeing to all of the following: (1) our communication is for entertainment purposes only; (2) you are not consulting me in my professional capacity as an attorney (or, for the purpose of obtaining debt relief counseling under the U.S. Bankruptcy Code); (3) you do not seek to establish an attorney-client relationship with me, nor do I with you; (4) you will not rely on anything I say and you will obtain appropriate legal counsel via a traditional/office consultation with an attorney licensed to practice in the jurisdiction where your legal issue arises (and you may not use our communication to avoid taxpayer penalties imposed by the U.S. Dept. of Treasury); (5) by communicating with me in this public forum you are irrevocably waiving any right to privacy, confidentiality and attorney-client privilege concerning the matters discussed. You further separately declare that any payment made by you is not consideration for this contract, nor offered for any services rendered by me on your behalf, but rather is made in genuine admiration and respect for my desire to help others. If you do not agree with these terms and conditions, then you must advise me immediately.

Customer: replied 3 years ago.
<p>I am not eligible for a chapter 7 because my personal income is higher than the mean income of Cupertino, California. I did not pass the means test. I think that I am not liable for any of the corporation debts because I did not even know about them. But it looks like I am liable based on community laws. Would it be advisable for me to file a chapter 13? I have a home (rental) in GA. It has very little equity. Value is now less than 400k and I owe 300k on it. I have stock options of about 50k and 401k at my place of work. Will I lose all of this? I have two kids in college and I find it hard to make ends meet even with a high personal income as we did not save for college. What should I do? </p><p> Also - please advise if I should file BK alone or my husband should also file with me or separately. How about his company? </p><p> </p>
Expert:  socrateaser replied 3 years ago.
A Chapter 13 must provide all of your unsecured creditors at least as much as they would receive in a Chapter 7. Your stock options and the equity in the rental property ($150K) means that you would have to pay out that amount to your creditors over the next 5 years of the bankruptcy plan. However, the Chapter 13 would stop the lawsuit, so it may be worth it, depending upon how much unsecured debt you have (not counting the million dollar lawsuit).

The one thing that a Chapter 13 bankruptcy would accomplish is that it would give you absolute certainty about the future, whereas defending the lawsuit in state court is a "crapshoot" -- and you may have to file for bankruptcy anyway, if you lose in state court.
Customer: replied 3 years ago.

1. Please advise if I should file BK alone or my husband should also file with me or separately. How about his company - should it file too? It is dead anyway.

 

2. Are you saying that $150 would be all that I will need to pay over the next 5 years if that is the total of all the assets I have? I don't have any personal debt. My credit cards are all paid in full every month. My husband's credit card on the other hand is completely used and not paid. That and his business line of credit is about $100k.

 

3. Right now 2 companies are sueing my husband and his company. They included me in the law suit because they feel that there is some hope of getting something from me. The total is about $1M and he has some tax debt of maybe around $200k or more. Maybe there are many other debts that I don't know about. Are you saying that if we have a total of $150k in assets, then I can keep those assets but need to pay $150 over the next 5 years not $1M?

 

4. What happens if we default on payments?

 

5. Can my wages be garnished by my husbands creditors?

 

6. Can I get a break as an innocent spouse?

 

Thanks for your prompt reply.

Expert:  socrateaser replied 3 years ago.
1. Please advise if I should file BK alone or my husband should also file with me or separately. How about his company - should it file too? It is dead anyway.

A: There's no reason to bankrupt the corporation, if it has no assets and nothing to preserve. If you can file a joint bankruptcy, that is generally a better plan in a community property state, because it eliminates creditors from attacking your spouse for the debt that you just discharged.

2. Are you saying that $150 would be all that I will need to pay over the next 5 years if that is the total of all the assets I have? I don't have any personal debt. My credit cards are all paid in full every month. My husband's credit card on the other hand is completely used and not paid. That and his business line of credit is about $100k.


A: Assuming that you file jointly, then it would be the $150K, plus any portion of your disposable after-tax income that could be used to satisfy your husband's creditors during the 5-year plan period. Under the circumstances, however, there may be a rationale to file a separate bankruptcy, and it could be that you would only be liable for the $150K. It depends on whether your GA home is community or separate property. If separate, then you are not liable for your husband's debts unless you signed onto the account(s). Which could save you another $100K, leaving only the $50K in stock options, and your salary at risk. You could get rid of those risks by divorcing your spouse. I realize that Indian women can suffer serious consequences with their extended family in India as a result of a divorce, so maybe this isn't a relistic choice. But, it has some economic value, so I'm mentioning it.

3. Right now 2 companies are sueing my husband and his company. They included me in the law suit because they feel that there is some hope of getting something from me. The total is about $1M and he has some tax debt of maybe around $200k or more. Maybe there are many other debts that I don't know about. Are you saying that if we have a total of $150k in assets, then I can keep those assets but need to pay $150 over the next 5 years not $1M?


A: I'm saying that unless you are being personally sued for fraud or misappropriation of fiduciary assets, then the bankruptcy would wipe out the $1M debt, and stop the lawsuit. So, you wouldn't have a $1M debt, because it would be discharged in bankruptcy.

4. What happens if we default on payments?

A: You are left at your creditor's mercy.

5. Can my wages be garnished by my husbands creditors?


A: If the debts are community, then yes. This requires some analysis, which is out of scope for this forum.

6. Can I get a break as an innocent spouse?


A: That's tax law. It has no application to bankruptcy.

Edited by socrateaser on 10/2/2010 at 7:57 PM EST
Customer: replied 3 years ago.

There is one company that has sued my husband, his company and included me for fraud. I was included because they feel that I was responsible for creating fraudulent invoices in my husband's company. It is true that I helped him off and on when he was busy but I had no idea what the company was doing and what contracts they had, It was like them asking me to mail a check or run an errand and I did. But the fact is that as a result they have sued me for fraud. The initial law suit was for $1M but now they claim that they have collected money from others and my husband now ows $200k. Where and how they collected I have no idea. What do I do? My husband is trying to settle with this company for $150k.

 

The $1M law suit is from a company that claims that I have signed a form or personal guaranty or something they call UCC. I have never met this person and never signed anything. Somebody is fooling around and I know that this is false. I don't know whether they have filed for fraud or not because I have not yet been served and I have no idea why this money was taken or is owed. My husband just told me that they have filed a case against him and included me. So I am very concerned with all this. If this $1M does not get discharged I will be liable right? For how long will I be liable? Will any of this get discharged in a BK or not ?

 

 

Expert:  socrateaser replied 3 years ago.
If you were to lose a fraud complaint, then you would be liable for the debt and it would be nondischargeable, even in bankruptcy. So, you must defend or settle the action, or file for bankruptcy, and then, if the plaintiff decides to sue you again in bankruptcy court to prove the fraud, then you would have to defend there.

That is, a fraud claim that the creditor does not attempt to enforce in bankruptcy is automatically discharged.

Sometimes, by shifting the case to bankruptcy court, the plaintiff decides that it's not worth the money to start all over again. Most state court attorneys don't litigate in federal bankruptcy court, so this means that the plaintiff must hire different legal counsel, and spend considerably more money to obtain a final judgment on the fraud complaint.

This is, in my view, another reason to file for bankruptcy. You could spend some time pretending to try to settle, so that the plaintiff exxpends resources on attorneys, and then at the last instant file for bankruptcy.

Re the personal guarantee, typically if there were such a document, then a copy of it would be attached to the plaintiff's complaint. If not, then you could informally request that the plaintiff produce a copy of the document to you, before formal discovery commences, in a good faith effort to settle the matter without resort to litigation.

If the plaintiff refuses, then maybe there is no such document -- and if there isn't, then you would have a legal action against the plaintiff for wrongful institution of civil proceedings.

The term "UCC" typically means a "UCC-1 financing statement." You can search for a UCC-1 at this link (requires subscription).

I understand your frustration, and frankly, you have a very complex case, which requires a fair amount of analysis that I cannot perform here.

My original answer is still valid. Find a bankruptcy lawyer and put all your cards on the table so that you know where you stand.
Customer: replied 3 years ago.

Maybe that guy or someone signed my signature on a form.

 

Will a legal separation (not divorce) from my husband help in sheilding me from these debts?

 

Thanks

Expert:  socrateaser replied 3 years ago.
If you signed for the debt, then nothing will shield you, except bankruptcy.
Customer: replied 3 years ago.

I did not sign anything.

 

Do you think I could qualify for a chapter 7 bk or do I have to do a chapter 13? I earn more than 100k per year but have many expenses and two kids in college. If chapter 13 how much would this cost?

Expert:  socrateaser replied 3 years ago.
Chapter 7 is cut and dry. You either pass the means test or you don't.
Customer: replied 3 years ago.

I did the means test from the url you sent me. It looks like I qualify for chapter 7. It said -

 

55

Secondary presumption determination

You Pass the Means Test
Because the amount on Line 51 is less than the amount on Line 54, the presumption of abuse does not arise. You can file for Chapter 7 or Chapter 13 Bankruptcy.

 

Will this be the best option for me? This is my final question hopefully. Please tell me what to do.

Expert:  socrateaser replied 3 years ago.
I cannot advocate a course of action. I "justanswer" questions about the law. If your goal is to keep the GA property, then Chapter 7 will not accomplish that end. If you just want to put it all behind you and move forward, then Chapter 7 may be the better option.

You need to get all of your finances together (and your husband's) and have a bankruptcy attorney try to figure out the relative cost-benefit of the two options. This is mostly an accounting problem. Hire a bankruptcy lawyer to run the numbers for you.

Edited by socrateaser on 10/2/2010 at 11:39 PM EST
Customer: replied 3 years ago.

So you are saying that in Chapter 7 I will lose everything I have right now but I will not lose my future income however high it is?

 

In chapter 13 I lose my future income (or a part of it) for 5 years after which the debts (dischargeable ones) are discharged?

 

 

Expert:  socrateaser replied 3 years ago.
You will lose your nonexempt assets in Chapter 7, to the extent that they are required to pay your unsecured creditors.

You lose only income in Chapter 13, and unless the bankruptcy trustee (or you) decides that the plan needs to be adjusted, due to a substantial increas/decrease e in your financial circumstances, your payment will not change during the 5-year duration.

socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 33850
Experience: Attorney and Real Estate Broker -- Retired (mostly)
socrateaser and other Bankruptcy Law Specialists are ready to help you
Customer: replied 3 years ago.

Approx How much income will I lose on chapter 13?

 

Expert:  socrateaser replied 3 years ago.
All of your disposible income goes to paying the plan. You'll have to calculate it. See Form B-22C.

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