Legal Question in Credit and Debt Law in Virginia

Re: S Corporation collection of debt from DBA

First, you have a claim against the buyer for the $28,000, plus probably interest and maybe attorney's fees, but the statute of limitations may have run on all or some of this (in VA it's 5 years from the date of breach of a written contract, which may apply to each payment due, or to the whole thing from the date of breach, depending on the terms). Whether the buyer has any assets from which to collect is another question.

If you did not formally dissolve the corporation, you can reinstate the corp. to collect. Or you can sue to collect debts of the dissolved corporation in your name or the corporation's name, acting as trustee for the creditors (if any) and shareholder(s). The proceeds have to go first to the terminated corporation's creditors, if any, and then to the shareholder(s). If the corp. was formally dissolved, the articles of dissolution should specify what happens with the assets.

As to a tax write-off, the answer depends on how you treated the sale to begin with. If you paid tax on the whole sale price, you should be able to deduct the bad debt; if you only paid tax as the money was received (so only paid on $7000) you cannot deduct the bad debt. See a tax lawyer or accountant for details.

Re: S Corporation collection of debt from DBA

I agree with everything Dan Press said. However, I'd add that the statute of limitations is an affirmative defense which means it doesn't stop you from suing or getting a judgment, it means that if the defendant specifically pleads the defense in his answer to the complaint, you'll lose if the claim is in fact stale.

Further, you asserted that a judgment has been "levied" against the debtor, but levy is something that happens when property is seized to satisfy a judgment, not the award of a judgment itself. The fact that there's already a judgment doesn't mean it's not worthwhile for you to get one, too. And, if your corporation was an accrual basis taxpayer, getting the judgment's a good way to satisfy the IRS that it's a valid deduction if you want to write it off.

Finally, several creditors can get together and force the debtor into involuntary bankruptcy, if there's assets sufficient to make it worthwhile. I think it's a $150 filing fee. I'd post the message in the tax and bankruptcy sections of this bbs, too, if I were you.