Personal vs. Corp BR

[calicorp]

Hi,

I have an S corp in California; I am the sole stockholder, and pay myself less than minimum wage. There were two main bank creditors of about $50k each, which were in my personal (not corp) name. In summer of 2010 I filed for a personal bankruptcy, using an attorney, which received its discharge last month (May 2011). I also sold my car (use a bicycle), sleep in the office, and got 3 sub-lease people to help pay the rent. If I were to have been paying myself a reasonable amount, there would be no money in the corp account at all; and if I started paying myself now, the corp account would be gone in a month or two.

The bankruptcy idea was that since I funded the corp using my two personal bank credit sources, a personal bankruptcy would elimiate the debt so I could afterwards close the corp and re-form the business in my personal name. However, one of the creditors has a UCC that says they own everything in the corp, which is about $2,500 in furniture and old computers. So now my attorney says they may be able to sue or obtain the corp money (about $35k) that has been put into the bank since then. Our sales have just about stopped, so the $35k is needed to just keep the office open.

Question: What options do you see?

Thanks,
Tim

[dczech09]

You have a bit of a mess going on here. Since you're posting on a forum, I would have to assume that your bankruptcy attorney is not being much help? Have you considered getting a new one?

If I understand coorectly, you're looking for whether you should file a corporate or personal bankruptcy? The problem with filing a corporate bankruptcy in this situation, where you are a single stock holder of the corporation, is that creditors could sue the corporation, not get anything, and then come after you personally because you would be responsible for the debt and bills and everything. This scenario is referred to as "piercing the corporate veil." Either way, you're gonna have a personal liability here.

This question is best left to someone who practices bankruptcy law, is trustworthy, and will actually get things done.

[calicorp]

He handled my personal bankruptcy already, but said there might be a conflict if he handled the corp. But with a disclaimer, it looks like he can do it.

The goal was to keep the business going, in any form. I don't really need any personal income/things.

After more talking with the personal lawyer, and some initial calls with some corp ones, it looks like the direction is to pay myself $60k salary, and repay me the rent. These two together are $8k/mo. So I just opened a new personal account with a small bank for $8k. Also pay the personal atty $5k. After payroll, and anther month or two, all money will be gone.

Then we will slowly close the corp, and offer to buy back the $3k or so of furniture and computers in the office.

[calicorp]

Well what we've done since then is to start paying me a salary, and start making payments to the one creditor that had a UCC. This will deplete the corp bank account by the end of the year. Also, I'll be buying back the desks, computers, etc, from the corp to me personally. And I already pay the rent and utilities personally. Then my corp attorney will dissolve the corp, and I'll just continue on personally.

[naomibatac]

Personal vs. Corp. BR

That seems to be a good plan. Anyway, the objective here is to eradicate your debt and be able to do business smoothly and without credit.