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Corporate chapter 7. Can a small corp. file for chapter 7 to get rid of corp credit cards and still stay in business /operate

Riverside, CA |

I am just wondering. The corp is an S-corp with really no assets. We are drowning in these corp credit cards. Want to know if something can be done but don't want to shut our doors.

Attorney Answers 6


  1. You cannot do it in a Chapter 7 for your business. There may be other structures which you can use to do this. For example, a Chapter 11 or combining your business with your individual assets and doing a Chapter 7 or 13 that way. This is a very fact specific issue.

    The above is general legal and business analysis. It is not "legal advise" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here. Please visit my web site: www.avanesianlaw.com for more information about my services.


  2. No. A corporate Chapter 7 does not result in a discharge, just liquidation of assets. Note also that most if not all corporate credit cards are either really issued to the individuals or have individual personal guarantees, so you are likely personally liable anyway.


  3. Corporations do not receive a discharge in Chapter, just a liquidation of assets. One option to consider might be a personal Chapter 7 to get rid of any personal liability you have for the corporate debts and forming a new corporation. This can be particularly attractive to owners of a service business where the value of the business is really the skill and reputation of the owners as opposed to the assets.

    I cannot say if this would be a good option for you or not, so you should contact an attorney who has experience in business bankruptcy cases. Whether or not you can filing for personal bankruptcy and keep the business running is something that can only be addressed after gaining full knowledge of the facts surrounding your situation.

    First, the firm is a debt relief agency according to the U.S. Bankruptcy Code. We help people file for bankruptcy. We also do other stuff and we do it well, but Congress wants me to post this notice. Second, nothing on this site is legal advice. You are not my client unless you enter into a written agreement signed by you and me.


  4. Mr. Avanesian is correct, and has helped you. You must choose: liquidation in Chapter 7 (the corp existence ends) or reorganization in Chapter 11 (the corp existence continues). Focus on the BUSINESS. If it's worth saving, consider Chapter 11.

    The above is meant to be valuable and not harmful, a lawyer intending to help a client or prospective client NEEDS facts. The more facts, the better. This medium, and often the question, do not promote fact gathering as well as an attorney's questions. So this answer is subject to revision based upon more facts. This response does not create an attorney client relationship and is not an attorney client communication. You should obtain advice from independent counsel of your own selection before proceeding. Visit JSCBKLAW.com for more info...


  5. I agree with Mr. Cohen's advice. The idea of filing personal bankruptcy and then forming a new corporation to carry on the same business brings with it concerns of successor liability, i.e., the old creditors seeking to establish liability against the new corporation.


  6. Corporate debt is not discharged in chapter 7. Chapter 11 is not appropriate given these circumstances. Most companies in this situation simply shut down.

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