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I live in NC and I opened a company to work on a project…

I live in NC and...
I live in NC and I opened a company to work on a project with my brother for a company he has done work for in the past, located in Virginia. We completed the first project which was for servicing doors and then collected a deposit for the first phase of a door installation project for the building. My brother has 2 other projects going on for himself and I let him borrow the funds for the deposit to complete his work & fix his truck with the verbal agreement to reimburse our company by the time we had to pay for the doors. With the profit margin so high and the fact that I originally believed the doors were in production I didn't see foresee a problem with this. Even if he just reimbursed the cost of the doors and the remainder would be prepayment for the install. Last week he went to jail and last Friday is when The company sent me an email stating the installation, per my brother, was supposed to be happening that week.The company e-mailed Monday and wants the deposit back and I do not have the money. I am not able to qualify for a loan to pay them back. If the doors had been ordered I have someone that would have loaned me the money to complete the project but that's not an option now. Hind sight 20/20 I feel like a fool. I thought my brother, was trying to help our situation so we could pay off my debt and purchase a home and get my mom off the couch.
I got advice from another lawyer stating to file bankruptcy and I wanted to hear fro a bankruptcy lawyer. I am not sure if there are other repercussion and i don't know where to start.
I have not replied to The company because i'm not sure if I should or what to tell them.
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Answered in 15 minutes by:
12/10/2017
legalg
legalg, Attorney
Category: Bankruptcy Law
Satisfied Customers: 11,932
Experience: General Practitioner
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Hello! I will be reviewing your question and posting a response momentarily; if you have any follow up questions please respond here. Thanks!

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I am very sorry to hear that your brother placed you in this situation.

There are 3 types of business bankruptcies:

1. chapter 7 - "liquidiation" - this is for when the business has no chance of recovery; the trustee will take over assets and distribute them among creditors. This is not ideal for partnerships or corporations because they do not receive a discharge meaning the partners remain personally liable for the debt. This often requires the individuals to file individual bankruptcy.

Also, often the owners will sign a guarantee, which exposes one to personal liability.

2. CH 11 - this is the reorganization chapter and is ideal for businesses that will continue to operate. The trustee will organize a repayment plan, often over several years, and the business will attempt to survive.

3. CH 13 - this is for sole proprietorships only.

Additionally, while corporations have a corporate veil which shields the owners from personal liability, if personal transactions were authorized (ie personal loans) that affect the financials of the company it is possible the court would find that to be pierced, exposing the owners to personal liability.

Another option is to seek an extension for the project and sue the partner for the loan assuming there are available assets that are not exempt.

Here is a link to the state bar referral page:

https://www.ncbar.gov/for-the-public/finding-a-lawyer/

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Customer reply replied 2 months ago
I am the only owner and the company is an llc and my brother doesn't have anything to sue for. I don't plan on staying in business.
Customer reply replied 2 months ago
Can you tell me if I should or how I should communicate with The company?

If one intends to file for bankruptcy it is best to retain the attorney and have them send a notice to the company. When one files for bankruptcy there is an automatic stay meaning the business cannot be sued without trustee approval.

One would need to determine if individual liability may be imposed (ie personal guarantee, piercing of the corporate veil, fraud)

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Customer reply replied 2 months ago
I myself never signed a personal guarantee, my brother had all communications with them.
If i am able to just file bankruptcy for the company could they go after me personally for anything if I haven't signed a personal guarantee?
I plan to set an appoinment this week with a local lawyer to start the process, i just wasn't sure if I should say anything to The company since they haven't sent anything to me in an official capacity, but their lawyer was cc'd on the email stating their disappointment in my brother.

A party can reaffirm a debt and end up "guaranteeing" it so any correspondence should be approved by a lawyer. As for personal liability the piercing of the corporate veil would be the possible manner in which an individual may be liable. The facts of the case would need to be reviewed in detail to determine if that is possible (basically an LLC is a separate legal entity but if personal assets are commingled, whether the LLC was not properly funded, whether business formalities were not followed, etc).

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Customer reply replied 2 months ago
Thank you!

Most welcome.

Good luck to you and I'm sorry you were placed in this position.

legalg
legalg, Attorney
Category: Bankruptcy Law
Satisfied Customers: 11,932
Experience: General Practitioner
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