Legal Question in Bankruptcy in California

Re: personal bankruptcy

If you properly and truthfully listed the ownership interest in that entity, then the trustee can elect to sell or liquidate that interest for the benefit of the estate. If you failed to list your ownership you should amend your petition to do so or face the potential of being charged with bankruptcy fraud. And yes, the "S" corporation will be effected.

Re: personal bankruptcy

If you properly and truthfully listed the ownership interest in that entity, then the trustee can elect to sell or liquidate that interest for the benefit of the estate. If you failed to list your ownership you should amend your petition to do so or face the potential of being charged with bankruptcy fraud. And yes, the "S" corporation will be affected.

Re: personal bankruptcy

You must list the shares of stock as an asset on line 13 of Schedule B of your bankruptcy petition. When you file for bankruptcy, a bankruptcy "estate" is created that consists of the property that you own.

There are many state and federal laws that determine what property you can keep and what must be given up in a Chapter 7 bankruptcy. Property that you can keep is called exempt, meaning that it exempt from the rights of the bankruptcy trustee to sell it for the benefit of creditors. The decision to sell nonexempt property is generally made by the trustee based on whether it has enough value to be worth selling.

Small corporations are often not valuable enough for the trustee to sell because of corporate debt and other issues. The trustee may file a Notice of Proposed Abandonment and the shares of stock will revert back to you unless your creditors file a timely objection. If the case closes and the trustee decides not to sell your shares of stock, legal ownership will revert back to you.

Credit applications for corporations often ask if any of the officers, directors or shareholders have filed for bankruptcy. While your personal credit history will not impact the corporation's credit rating, it may influence the decision of someone who has been asked to extend credit to the corporation.