What does this mean?
Question: What happens to my corporation if I file personal bankruptcy?
Answer: Since the corporation is a legal entity different and distinct from its shareholders, the bankruptcy of a shareholder does not affect the corporation. The bankrupt shareholder's shares in the corporation are an asset of his bankruptcy estate. The value of the shares in the hands of the bankruptcy estate is a function of the share's marketability, the percentage interest they represent of the corporation, and the net value of the corporation's assets.
Why: Because I've just started and s-corp that has no income yet, but Capital One has just filed a lawsuit against for unpaid debt. Does this mean that Capital One will inadvertently own my assets?
First I am assuming that Capital One is suing you, not your Corporation. So if you file bankruptcy, the corporation is listed as an asset of your bankruptcy. You then have an amount of assets you get to keep. You keep these assets by applying the proper bankruptcy exemptions to those assets. If you are able to exempt the entire value of your corporation, you will get to keep the corporation. If you cannot exempt the entire value, your trustee may liquate the asset to pay off your debts.
I would also think twice about filing bankruptcy just because of credit card debt. Consult with a bankruptcy attorney to get more information. But also think about hiring an attorney to help you negotiate with Capital One or to defend you in an upcoming suit to collect. Not enough people hire an attorney to defend them in actions to collect on credit card debt. And if you hire someone who is familiar with debt collection defense, it really can be worth it.
The information in this answer is not intended as legal advice nor do I intend to create an attorney-client relationship with any reader simply by answering this question or contributing as a member of AVVO.
I doubt that bankruptcy is the correct thing to do for a single credit card debt. I suggest that you hire a lawyer to defend the upcoming lawsuit.
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