I had a taco shop that went out of business. I owe 95k on my sba loan and another 20k on credit cards.

Asked about 2 years ago - Fresno, CA

The SBA has a lien on my rental property. I have a primary residence in Fresno CA. I am also a real estate agent and make approximately 65k per year. What happens if i bankrupt my corporation and me as an individual? Will the SBA take my rental property? Can creditors come after my primary residence since i have about 300 k in equity.

Attorney answers (6)

  1. Paula Brown Sinclair

    Contributor Level 20

    17

    Lawyers agree

    Answered . Mr. Stumpf is correct that formally bankrupting your corporation doesn't create any rights you don't already have. Your major exposure is your rental property. How great that exposure is depends on the amount of equity you have in that property. The whole point of that SBA lien is to secure payment of the loan. Secondly, your homestead may also be at risk. California statutes allow homestead exemptions in amounts that differ depending on facts you have not disclosed, but none come close to your $300K in equity. Therefore, any creditor could well be expected to make the effort to obtain a judgment and execute against your primary residence. As a licensed real estate agent, of course, you are already knew how your real property relates to your debt. With your assets you need to find a way to satisfy your creditors before they start enforcing payment in ways that you won't like.

    Best wishes for a result you can accept, and please remember to designate a best answer.

    This answer is offered as a public service for general information only and may not be relied upon as legal advice.
  2. Robert A. Stumpf

    Contributor Level 19

    13

    Lawyers agree

    Answered . First question- "bankrupting" your corporation would probably do little good, a corporation can't have it's debts discharged (wiped out) only liquidated, and you could probably just liquidate it yourself without the bankruptcy court getting involved.

    As for the rest, you need to seek a bankruptcy attorney in your area. The answer would depend on California's bankruptcy exemptions and your over all situation. Good luck.

  3. Javed Inam Ellahie

    Contributor Level 10

    9

    Lawyers agree

    Answered . If the SBA forecloses on the rental (regular non judicial foreclosure) you do not have to worry about them coming after you.
    As to your other creditors, they will have claims against the equity in your residence, so depending on how much the "net" available equity is (you do get to deduct homestead exemption, cost of sale and potential Chapter 7 trustee and attorney fee) you may want to consider doing a chapter 13 and just paying the "net" equity to your creditors over 5 years.
    There may be issue of whether you are eligible for chapter 13 at this time, given that you have 2 properties as under Section 109(e) your total secured debts cannot exceed: $1,081,500 and the total unsecured debts must be less than $360,525.

    Legal disclaimer: Disclaimer: This answer does not constitute legal advice. I am admitted in California and... more
  4. Richard Eric Anthony Dwyer

    Pro

    Contributor Level 14

    8

    Lawyers agree

    Answered . The bankruptcy trustee will almost certainly go after the equity in your real property. You should always keep in mind that trustee get paid a portion of the money they recover.

  5. Deborah F Bowinski

    Contributor Level 17

    9

    Lawyers agree

    Answered . Your questions are good ones, but ones that are not easily answered without significant additional information. Your circumstances are not simple and your best bet is to consult an experienced bankruptcy attorney in your area who can help you plan and offer advice for how to attain the best possible outcome.

  6. Guillermo Machado

    Contributor Level 6

    4

    Lawyers agree

    Answered . You can only homestead your residence up to $175K if anyone in your home is disabled, you are over 55 and cannot work or anyone in your home is over 65. Otherwise, the exemption drops to $100K if you are part of a family unit in your home. With $300K equity, creditors will want to get paid from unprotected equity. I advice a 13 where you can keep home and pay back creditors the unprotected equity. Looks like a 100% plan at first glance based on equity, so depending on how much debt you have, your income alone may not allow for a feasible repayment. As for SBA, this one will be tricky if it's secured against rental. Must consult an attorney.

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