Legal Question in Bankruptcy in California

Re: s corporation

A bankruptcy will discharge all your personal debt. The money you owe to the corporation or personally guaranteed to the corporation's creditors will be discharged.

The reason people open corporations is so that they can escape personal liability in the event the corporate business fails. So, there is no reason you should be paying the corporate debts unless you have signed personal guarantees. As a matter of law, you are not responsible for the debts of a corporation, even if you are the sold shareholder.

There are two important exceptions to this rule: 1. Fraud, and 2. Violation of the Business Judgment Rule.

If you have lied to the business' creditors, then you may be liable to them, whether or not you signed a guarantee. Likewise, if you caused the business to enter into some poor transactions without any valid business reason for doing so, you could be liable to the other shareholders.

Bankruptcy could discharge everything but fraud and criminal conduct (and a few other things not relevant to this question). So, a bankruptcy could very well be the best way for you to obtain a new and fresh start.

Depending on the chapter you file, you may have to wait a few months until you start a new business.

Many attorneys, including me, will provide you with a free means test analysis to determine whether you qualify for bankruptcy and what chapters.

Re: s corporation

A bankruptcy of an "S" corporation will not help you...corporations do not get discharges in bankruptcy and your corporation's debts will pass along to each of the owners of the corporation. If you don't pay your obligations the taxing entities and likely your creditors will pursue you each as individuals. Your partner's idea makes sense and if you do not have an extra $200.00 to contribute each month, then you certainly are in no position to consider starting another business!