Filed Ch 7, but have business debt questions

[Denita]

I posted before regarding my Ch 7 filing. I filed personally 9/30/08. You all were kind enough to point out that I could not pay the BUSINESS debt during the BK because that is considered preferential payments. And that I would be PERSONALLY discharged at the time of the discharge (assuming everything goes ok), but the creditors can come after the business after the discharge.

The question is this: Don't I have to pay this business debt anyway if I am going to keep the business? I think have to keep the business because it is a PA (S Corp) and that is how I am licensed.

So what would you do then? Work out some sort of settlement on these creditors only (really only two report to the CRA's - Lowes and Advanta). I am really only worried about Advanta (over 15k).

[Methuss]

An S-Corp is still an entity of itself, unlike a sole proprietorship or limited partnership. Therefore it's debts are its own. I believe we told you not to pay business debts from your personal funds because that would pose a serious problem on your personal bankruptcy.

I believe you may have a bigger problem here if you were co-mingling your personal funds with that of the S-Corp. That is a big no-no. Since an S-Corp is an entity of itself, if you don't keep the books seperate and pay yourself from the S-Corp's profits like any other shareholder you are essentially stealing (embezzling) from the company.

If you were not co-mingling assets, then the S-Corp stands alone with its debt. Your personal liability for anything you put your name to for the business' benefit is discharged by your personal bankruptcy. The lender can still go after any company assets, just not you. and the S-Corp can file its own bankruptcy to liquidate it's debt seperately.

[Denita]

Nope, not co-mingling funds. Business checking acct, debts paid from the business account.

There are really no assets to the business but me (this is real estate sales). The reason I am lic as a PA is to not pay personal income tax on business expenses, which can be quite substantial. This way I am only paying personal income tax on my income (like most people!).

I do not want to file a BK for the business - there is only the $15k from Advanta plus next to nothing for Lowes.

So, do I understand this correctly:

1) Business is separate corp entity

2) I can pay business expenses during BK from business acct and trustee will be OK with it (???)

3) All personal liability for these debts is discharged in the personal BK

I want to do the right thing. I am a little confused with this issue, that is why I am asking in this detail. Because if I need to make payment arrangements with Lowes and Advanta for the PA, I want to know how and when to do it. Do I do it during the personal BK or after? Do you see where this confusion is coming from???

[Methuss]

1) Yes.

2) Yes. The S-Corp money is not your money. It belongs to the company.

3) Sort-of. Only your personal guarantee is discharged. The business is still on the hook for it. But I can pretty much guarantee the lender will close the accounts without a personal guarantee to fall back on. Corps go bankrupt all the time and there is rarely anything for the lender to go after, there isn't even a credit report to use as punishment...hence why they require somoene to put themselves up personally so there is an actual person to go after.