Legal Question in Bankruptcy in Florida

Re: dissolved s corp debt

The "S" Corporation designation is solely an IRS distinction. Under state law, a corporation is a corporation, regardless of tax treatment. A corporation is a separate legal entity (a separate person) from its shareholders, even if there is only one shareholder (namely you).

The corporation can enter into contracts and obligations in its own name. Therefore, it is liable for all its own debts. Sometimes, creditors/vendors will require a "personal guarantee" from the shareholders, directors, or officers of a corporation. A personal guarantee basically is a legal document that says that if the corporation fails to pay the debt, then the signing individual will personally pay the debt.

If the shareholder files for personal bankruptcy, the discharge would extinguish any personal liability the shareholder would have for any personal guarantees made for the corporation, but it would not eliminate the corporation's obligation to pay the debt.

That being said, if your small business is like most small businesses, and it stopped being a going concern (business failed) at about the same time or shortly before you filed for personal bankruptcy, then the only thing the creditor can do is to collect against whatever assets are still being held by the corporation, if any. If the business is gone, then the creditor can allege their claims against the company all they want, but there is nothing to collect.

For more information about business dissolution and bankruptcy, check out our website at www.LaBellaLaw.com.