calicorp
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| Personal vs. Corp BR |
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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
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Fri Jun 03, 2011 5:27 pm |
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coaster
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I think that looking at it from the point of view of the creditor, their argument would be that the purpose of the corporation was to shield personal assets from personal bankruptcy. All the facts you've mentioned tend to support that point of view: forming the corporation with personal money then filing bankruptcy, now living in the office, not paying yourself a market wage, no sales, no business, plans to close the S corp and then reopen as a personal business.
You'd have to come up with some facts and some evidence, and some believable arguments, that's not the case. Perhaps: if this were a real business, in business to make a profit, what would be happening at this point?
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Sat Jun 04, 2011 5:05 am |
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eastmn
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Looks like maybe you could have (through low tax capital gain bonus) shifted assets into something profitable. There's a similar situation going on here in town with a big commercial builder. The bank isn't satisfied just to repo the properties. They want blood; did an audit, accusations of fraud and improper spending. It's hard to understand why banks put up such a fight over fiat salvage (bankruptcy) deals. I think that it's greed, that they want to take everything they can get, and then they shift it into their own pockets. It's just the nature of the beast (goat).
Last edited by eastmn on Sat Jun 04, 2011 11:12 pm; edited 1 time in total |
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Sat Jun 04, 2011 9:35 am |
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coaster
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Gordon Gecko is BACK!!!! (He's now the CEO of a major multinational bank)
Big megabanks to all: GREED IS GOOOOOOD!!!
yum yum!! 
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Sat Jun 04, 2011 4:19 pm |
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calicorp
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I thought it was the opposite: I was putting personal assets at use/risk for the corp, including paying the rent for 8 years out of my pocket. There is sales and business, but it's just 1/5 of what it was five years ago.
The personal attorney says I should start paying myself a salary, and starting paying me back for rent; this will deplete the corp account in 3 months at the current sales level. Then make an offer to the creditor to buy back the office furniture and computers from them (which are 10 years old and worth about $3,000). Then dissolve the corp and re-open as a sole proprietorship in the same location, using my name as the new company name.
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Sat Jun 04, 2011 5:25 pm |
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eastmn
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My point was that I agree with your lawyer;
that you should not leave money on the table;
because the bank will snatch it up (fight).
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Sat Jun 04, 2011 11:06 pm |
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coaster
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quote:
Originally posted by calicorp
I thought it was the opposite:
Yes, but the problem is still that the creditor thinks otherwise, and thinks he has cause. That's the problem of appearances, unless you can document all that in black and white, which if you're like me, you can't, because you just did what you thought needed doing at the time, even if it meant at personal expense, and now it's come back to bite. I think taking the advice of the lawyer would be a good first step; closing and dissolving the business as a non-going concern would be a good second; it shows it's being operated as a business and not an asset shield, and any business in the straights you describe would likely be terminated.
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Sun Jun 05, 2011 6:29 am |
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eastmn
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Looks like he's trying to discharge the debt in order to try and keep the business afloat.
Quoting Donald Trump:
"Bankruptcy (debt discharge) is a creative accounting tool for the wealthy".
Asset Trust Protection Clause (loophole): Hide assets in order to remove them from bankruptcy proceedings (asset stripping).
Greed is Good Speech... 
http://wn.com/Gordon_Gekko_Greed_is_Good_Speech
Last edited by eastmn on Sun Jun 05, 2011 6:39 pm; edited 1 time in total |
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Sun Jun 05, 2011 10:03 am |
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calicorp
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Yes the goal was to keep it going. 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.
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Sun Jun 05, 2011 4:28 pm |
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eastmn
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Piercing Corporate shield: In a case going on here locally, the bank was able to get a court order to audit the debtor's books. The banks are now claiming fraud in an attempt to go after his personal assets. Bank now claiming that builder supposedly had a few shell corps he was using to shift funds (loan proceeds). Well, and now the builder is trying to work up some sort of counter suit, claiming that the banks interfered with vendors and customers, costing him a few million in losses "too".
Here's a news article:
http://www.businessreport.com/news/2009/may/18/spinosas-perkins-woe-rlet1/
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Sun Jun 05, 2011 6:54 pm |
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calicorp
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After I pay myself, however, there will only be the furniture and computers; about 20 of each, and all older than 10 years. Probably $3,000 worth.
Not sure if it's worth their time.
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Sun Jun 05, 2011 9:15 pm |
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eastmn
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You might want to call one of those bankruptcy Furniture Liquidator companies out to give you a bid/estimate before making an offer.
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Sun Jun 05, 2011 9:23 pm |
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coaster
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quote:
Originally posted by eastmn
Looks like he's trying to discharge the debt in order to try and keep the business afloat.
Exactly. And why the creditor wants to go after the assets.
If he follows the advice he's been given by the lawyer, then the business will fail, and there won't be anything for the creditor to go after, but he'll have the income and the reimbursement.
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Mon Jun 06, 2011 4:38 am |
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eastmn
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There are some interesting or helpful legal
articles listed here in the left menu:
http://www.rjmintz.com/q-a/
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Mon Jun 06, 2011 8:01 am |
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eastmn
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Cash: $ 81.20
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quote:
Quoting Donald Trump:
"Bankruptcy (debt discharge) is a creative accounting tool for the wealthy".
20 Desks and computers; made me realize that it might help to prepare or add a statement on how you are "a pillar of the community" (due respect and favor).
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Sat Jun 11, 2011 8:29 pm |
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