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Should my friend file for Chapter 13 with his corporation, or can the corporation just filed for Chapter 11.

El Paso, TX |

I have a friend who has a corporation that can't meet its payments, and he signed a guaranty agreement on most of the corporation's large loans. He doesn't want to ruin his credit by personally filing for bankruptcy, but he and his corporation were sued in state court. Someone told him he should have his corporation file for chapter 11, remove the state court action to bankruptcy, and have the guarantees voided? Or does he have to file chapter 13 and list the corporation as a co-debtor in order to get out of state court? All advice will be appreciated. Thanks in advance.

Attorney Answers 3


  1. Corporations can't get a discharge & even if they could, as a guarantor, he is still personally responsible for paying these debts & is on the hook. Wrecking your credit in order to eliminate massive amounts of debt is a small price to pay. Besides, I have written a 10 part series explaining how to rebuild your credit after bankruptcy, so frankly, the bad credit may not last all that long. Hope this perspective helps!


  2. if corporation has regular income and wants to take responsibility, corporation will have to file chapter 11. However, if corporation files for chapter 11, it will not stop the State court action to proceed against your friend. it will stayed against the corporation. If the plaintiff wishes to continue to proceed against the friend she will have to consult a bankrutpcy attorney to choose the best course of action for her.

    Madhu Kalra Kalra Law Firm 23720 Arlington Avenue, Ste 5 Torrance, Ca 90501 (310) 325-9012


  3. Great question and a common problem faced by small business owners. However, there is no substitution, in this kind of situation, from direct, detailed advice from an experienced bankruptcy attorney. The general answers here are not going to be of too much use. Go find a capable attorney.

    I am licensed only in Texas. Offering information of a general nature in response to a question is not intended to be legal advice in your state.

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