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socrateaser
socrateaser, Attorney
Category: Business Law
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Experience:  Retired (mostly)
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Hello, my name is Flo. I was looking for information about

Resolved Question:

Hello, my name is Flo.

I was looking for information about dissolving my IL S Corp. I live in California now and my wife and I are filing personal BK because our two properties in Chicago have been a money pit for us.

On the business side I owe an 18k balance on a 38k high interest loan of which I have not been able to pay for 2 months now because of a very bad first quarter.

The loan was for my business with me being the personal guarantor.

Should I be filing BK for my business or dissolving it. Thanks for reading.
Submitted: 1 year ago.
Category: Business Law
Expert:  socrateaser replied 1 year ago.
Hello,

If you are a personal guarantor for the business loan, then no matter what you do, you will be personally liable for the loan. Dissolving the corporation will leave you personally liable for any unpaid debts, so your choice is either to simply close the door on the business and not file bankruptcy, leaving the business suspended forever. Or, you can file bankruptcy, and then dissolve.

The first option leaves you liable for the annual $800 California minimum tax. However, in my experience the Franchise Tax Board never tries to collect the tax from a suspended corporation with no assets. So, even though the tax bill gets bigger forever, it may never come back to bite you, given the history of the FTB. But, if you want to play by the rules, then it's bankruptcy followed by dissolution.

Hope this helps.
Customer: replied 1 year ago.

Ok, my business is incorporated in IL. so does the IL. tax apply the same way as you were referring to the California tax? Thanks

Expert:  socrateaser replied 1 year ago.
Illinois has a franchise tax, but it's much lower. It's 0.001 X the paid in capital in the corporation. An $800 tax would be the equivalent of $800,000 in paid in capital. Somehow I doubt you're anywhere near that number. Regardless, you may be better able to sleep nights if you file bankruptcy on the business.

The problem that most small business owners confront is that if there are any problems at all with the bankruptcy petition, then the business owner must hire an attorney to represent the corporation, because under federal law, a corporation must be represented by an attorney in bankruptcy court. This makes the cost of a simple Chapter 7 bankruptcy very expensive. There are ways to get around this, but only if no creditors complain about the bankruptcy. Before you make a decision on whether or not to just close the doors, or file bankruptcy, you probably should get a local consult with a bankruptcy lawyer, so that you can lay all of your "financial cards" on the table in a confidential setting. But, if you combine your meeting with your personal bankruptcy issue, you may be able to get a free consult, because bankruptcy attorneys don't generally charge for a first consult on a personal Chapter 7 or 13 -- but they do charge for a business Chapter 7 or 11 first consult.

Hope this helps.
socrateaser, Attorney
Category: Business Law
Satisfied Customers: 33788
Experience: Retired (mostly)
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