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socrateaser
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 33513
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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Hi. I own a Sub-S corp and have lost income due to the recession.

Customer Question

Hi. I own a Sub-S corp and have lost income due to the recession. I am almost $30K in debt, split over two credit cards. I have contacted my bank and they said that the company is the borrower and I am the guarantor. They wouldn't give me a definite answer and said that I might be protected under bankruptcy law since the company is incorporated and NOT a sole prop or LLP.

My company is incorporated in the state of NY. How can I eliminate my debt without damaging my personal credit? My personal credit is flawless. I would like to bankrupt the company and dissolve it.

I have since gotten a full-time job and continue to pay down my business debt with the remaining money in my business bank account...which will run out in a few months.
Submitted: 3 years ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 3 years ago.
Hi,

As personal guarantor, were you to file for corporate bankruptcy, whether Chapter 7 (liquidation) or Chapter 11 (reorganization), the creditor would simply turn to you for payment. So the corporate bankruptcy will be a complete waste of resources, as it will accomplish nothing, that you could not just as easily accomplish by shutting the doors on the business.

If you need to jettison this $30K, and you have a job, then your only recourse is a personal Chapter 13, under which you would force the lender to extend payments for the next 5 years, and any debt remaining at that time would be discharged.

Obviously, this is a draconian solution, because it means going on a 5-year austerity plan, since all of your disposable income will be dedicated to that purpose. However, the alternative, i.e., a debt settlement company intervention, will cost you as much in servicing fees as you are now paying in credit card interest, and most of the time, such plans fail, and the debtor ends up in Chapter 13 or 7, after burning $10,000+ and getting nowhere on the underlying debt.

Bottom line, you have to decide whether or not your spotless credit report is worth getting rid of the $30,000 albatross -- because that is the exact trade off you face.

Hope this helps.

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