Small business owner of franchise personally liable if file for bankruptcy, can rental lease be included in bankruptcy

Asked over 6 years ago - East Meadow, NY

I own a small franchise business, have lost lots of money & need to close down,
owe landlord 4 months rent, also late on all utilities. My business name is Incorporated & all ppwrk was signed under the corporation by me as the only owner, I later became an S Corp. If I file for bankruptcy will or can they sue me directly, personally? Do not want to ruin my personal credit or jeopardize my personal assets. Can rent also be part of a bankrupcy?? Can the landlord sue me directly for the rent, or would that be the corporation?
I was under the impression that once you incorporate no one can come after you personally, only after the corporation name, was this incorrect?

Additional information

I do not owe any payroll or taxes

Attorney answers (2)

  1. Neal Andrew Goldstein

    Contributor Level 10

    2

    Lawyers agree

    Answered . Do not do anything without talking to a lawyer. You probably wont have to spend a lot on legal fees but considering what you spent on a franchise do yourself a favor and spend a little more. A number of franchise owners go under. What does your agreement say about selling the business? Have you spoken to the franchise developer? What are they saying about your financial issues? Rent can only be part of bankruptcy if it is in the corp. name that is filing for bankruptcy.Most of the time once you incorporate you can not be held personally liable but there are exceptions. See what I mean? Talk to a lawyer.

  2. Michael Alex Wasylik

    Contributor Level 14

    2

    Lawyers agree

    Answered . This is important enough that you should consult an attorney specializing in franchisee-side transactions. You're probably already aware that your franchise agreement may provide for "liquidated damages" (you'd probably consider them penalties) for early termination. I would be surprised if you were able to open a franchise and not have a personal guarantee in your name on any of the documents. That said, if you did manage to avoid a personal guarantee of the franchise contract, it might be difficult for them to attempt to make any claims against you personally, but not impossible.

    As far as your landlord goes, it depends on who your lease names as the leasing party, and whether you personally guaranteed the lease.

    For the exposure you're facing, it's probably worth it to spend a few hundred dollars to have an attorney review your franchise documents.

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